Individuals and firms who took policy covers in financially troubled insurance firms and failed to receive their dues will get KSh 4.3 billion compensation from the government.
This follows recent amendments to the insurance law that allows compensation to policyholders of any insurance firm that is financially distressed but has not yet been liquidated.
The Insurance (Policyholders Compensation Funds) (Amendment) Regulations, 2019 has been amended to remove insolvency of the insurer as the condition for the Board of Trustees to provide compensation to the claimants.
This amendment was to be effective July 17th, 2019 but could not be implemented owing to delays in passing the Finance Bill 2019.
Now the Policyholders Compensation Fund (PHCF) can pay clients of all insurance companies that got into distress from January, 2005, including those still under administration.
Previously, policy holders could only get compensation from the Policyholders Compensation Fund (PHCF) after their insurer had been declared insolvent.
The cut off on the compensation list is policy holders of firms that got into financial problems after 2005. This is when the Policyholders Compensation Fund (PCF) was established.
“Compensation for policyholders with these underwriters is going to boost confidence in the insurance industry,” said Mr. Tom Gichui, Chief Executive Officer, Association of Kenya Insurers (AKI).
United Insurance, Standard Assurance and Blue Shield have faced severe financial difficulties as a result of huge exposures to the Public Service Vehicle (PSV) underwriting business.
“These firms went under because of rampant fraud in the PSV underwriting business and huge claims incurred in the event of an accident. When a bus with 65 or more passengers is involved in an accident, the claims that an underwriter has to settle are huge,” said Mr. Gichui.
Policyholders of collapsed or troubled insurance firms will now be paid upto KSh 250,000.
“The reason PSV underwriting business is exposed to huge losses compared to other insurance businesses is carelessness by drivers and presence of unroadworthy vehicles on the road,” said Mr Gichui.
The Insurance (Policyholders Compensation Funds) (Amendment) Regulations, 2019 is meant to remove insolvency of the insurer as the condition for the Board of Trustees to provide compensation to the claimants.
These amendments to the Insurance Act are contained in the Finance Bill 2019 and became effective in December 2019.
The list of insurance firms that have collapsed include Kenya National Assurance Company (KNAC), Lakestar Insurance, United Insurance, Blue Shield Insurance, Access Insurance Company, Stallion Insurance Company Ltd and Concord Insurance.
The PHCF is a State Corporation under the Ministry for Finance that was established through the Legal Notice No.105 of 2004.
PHCF was established for the primary purpose of providing compensation to policyholders of an insurer that has been declared insolvent and for the secondary purpose of increasing the general public’s confidence in the insurance sector.
The decision to establish the Fund was prompted by collapse of several underwriters, especially those who took up the PSV underwriting business after 2005.
