Kenyans have spent Sh35.73 billion on non-existent insurance covers after brokers failed to remit premiums, exposing clients to huge losses when making compensation claims.
The Insurance Regulatory Authority (IRA) revealed that its threats to deny the offending agents operating permits had contributed little to lowering the unremitted premiums.
This implies that the risks worth billions of shillings are not recognized under the “cash and carry” principle, which requires that if an insured party suffers a loss before the premium is remitted to the insurer then the insured cannot be compensated.
“The number of outstanding premiums in the industry declined by 14.5 percent from Sh41.77 billion in 2018 to Sh35.73 billion in 2019,” IRA chief executive Godfrey Kiptum said.
“Out of all the outstanding premiums in 2019, general insurance business accounted for 83.7 percent while long term insurers proportion was 16.3 percent.”
The Sh35.7 billion is equivalent to 15.6 percent of the Sh227.9 billion gross premiums that insurance firms underwrote in 2019.
Unremitted premiums have increased significantly from Sh26 billion.
Policies that cover motor vehicles registered the highest premiums of between four and five percent of the vehicles’ value. Other policies in the general insurance category include medical, theft, industrial fire, domestic fire, and engineering,
Insurance brokers blocked the move to keep them off them from handling cash when seeking business on behalf of the insurance firms.
The amended Insurance Act blocking brokers from handling cash on behalf of insurers was to take effect in July last year but brokers received a temporary court injunction allowing them to continue receiving the premiums until the dispute is determined.
IRA says brokers are exposing customers to heavy losses besides weakening the financial stability of insurers by failing to submit the premiums collected.
IRA CEO, Godfrey Kiptum noted that brokers should only earn commissions for their work and drop their interest in premiums collection.
However, the Association of Insurance Brokers Kenya (AIBK) believes that the ban on cash handling will drive its members out of business.
During the amendment, brokers lobbied Parliament for compromise, pushing instead for the introduction of a penalty to tackle the issue for premiums embezzlement.
As a result, legislators approved a Bill that would allow brokers to receive premiums but submit the cash to insurers with 14 days.
But when the Bill was taken for presidential assent with the recommendations of the brokers, President Kenyatta refused to sign it and sided with the Treasury which had sought to lock out the brokers.
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According to IRA, brokers control 41 percent of the business underwritten in the country, stating that their delay submitting their collection negatively impacts the financial position of insurance companies.
Some brokers say they are struggling to recover millions of shillings in premiums from collapsed and struggling firms. They also noted that some of the outstanding premiums stem from payment arrangements that allow corporate bodies to pay in installments.
Brokers say that there are a number of outstanding premiums are owed to customers under Insurance Premium Financing (IPF), a facility that enables customers to pay their insurance premiums in installments rather than in one lump sum amount.
Related: Sanlam Insurance Broker Accused Of Stealing Sh11.8m Premiums
