Businesses, households and individuals have spent KES38.1bn ($35.2m) on non-existent insurance covers following delays in remitting premiums to insurers. The KES38.1bn is equivalent to 16.3% of the KES232.9bn gross premiums that Kenya's insurance firms underwrote last year.
The delays resulted from brokers, agents and banks failing to wire premiums to insurance firms covering the risks, according to a report in Business Daily.
This means that the risks worth hundreds of billions of shillings are not recognised under the “cash and carry” principle, which stipulates that if an insured party suffers loss before the premium is remitted to the insurer then the insured would not be compensated.
The latest data from the Insurance Regulatory Authority (IRA) show outstanding premiums increased by 6.7% to KES38.1bn last year as the COVID-19 pandemic affected the cash flows of insurance intermediaries.
Outstanding premiums have escalated over the years from KES26bn in 2014, KES29bn in 2015, KES34.5bn in 2016, KES37bn in 2017 and KES44bn in 2018. The unremitted premiums dropped to KES35.7bn in 2019 following warnings from the IRA that it would not renew the licences of market players which fail to remit premiums to insurers. At the beginning of last year, the regulator denied operating licences to more than a third of insurance brokerage firms or 80 companies for the remittance breach.
The IRA also raised a warning during the COVID-19 crisis, fearing a rise in delays by intermediaries in submitting premiums.
Mr Godfrey Kiptum, IRA chief executive, also said in a public notice last year, “Insurers are advised to set measures to support insurance agents and brokers in the current difficult business conditions brought about by the COVID-19 pandemic by paying commissions immediately the business is transacted and in accordance with the provisions of the Insurance Act.”
The Insurance Act was amended effective July last year, barring brokers from handling cash on behalf of insurers. Defending the law change, the sector regulator said that brokers expose customers to heavy losses besides weakening the financial stability of insurers by failing to remit the premiums collected. Mr Kiptum has argued that brokers should only earn commissions for their work and should not engage in premiums collection.
However, the brokers received a temporary court injunction allowing them to continue receiving the premiums.
Insurance firms have also been blamed for delaying payments to reinsurers.