Regulators are moving to reinforce the Policyholders’ Compensation Fund, which protects insurance customers in the event of an insurer collapse, by raising the compensation ceiling from KSh 250,000 to KSh 500,000.
- •According to the draft Kenya National Financial Inclusion Strategy (2025 -2028), the spike in fraud schemes, cyberattacks, and unethical lending practices has eroded consumer trust.
- •In the insurance sector, the Policyholders’ Compensation Fund (PCF) reimburses customers and third-party claimants when an insurer is placed under statutory management or loses its license.
- •Regulators are also weighing a review of the compensation limit for depositors in banks, as well as introducing protections for trust-based accounts such as pensions and digital financial products, that fall outside the current framework.
The move is part of Kenya’s wider push to increase safety nets for depositors and investors into financial instruments like insurance and capital markets.
This has included a fourfold increase on the ceiling for compensation payouts from the Investor Compensation Fund, which compensates investors if brokers or investment firms fail to meet obligations, to KSh 200,000 from KSh 50,000. The increase is meant to give retail investors a stronger cushion against sudden defaults, though the cap still falls short of covering larger portfolios.
With a pre-funded model financed by insurers and policyholders, PCF is considered structurally sound, but reforms are being pursued to expand its authority in liquidation and claims handling.
Beyond compensation, public education campaigns such as PCF Mtaani, along with partnerships with the Kenya Deposit Insurance Corporation (KDIC) and the Insurance Regulatory Authority (IRA) are meant to build awareness and strengthen consumer trust.
KDIC is the country’s financial resolution authority, covering 52 members including commercial banks, microfinance lenders, and one mortgage finance institution. Its deposit insurance limit stands at KSh500,000 per depositor per institution, insuring 99% of the country’s 77.9 million accounts. However, insured deposits account for only 14% of the sector’s KSh5.77 trillion base, well below international best practice of at least 20%.
According to the latest banking stress test from the Central Bank of Kenya (CBK), rising risks in financial institutions hailing from bad loans, cyberattacks, and new capital rules, underscoring persistent pressure on lenders.
The CBK projects the sector’s non-performing loan ratio could climb to 21.2% under a severe scenario by December, pushing six banks below minimum capital requirements and creating a KSh5.1 billion shortfall. Cyber risks add another layer of strain, with potential losses running into billions and overlapping with banks most exposed to credit shocks.
