Unpaid claims land insurer class action court battle

“There has been an increase in the number of complaints in the last six months,” said Noella Mutanda, the head of corporate communications at IRA.

Closely monitoring

Ms Mutanda said the authority was closely monitoring the worsening claims payment position in the industry and will act “to protect policy holders.”

Kennedy Gichimu, who heads the Association of Kenya Independent Insurance Agents, the group that makes the first line of contact between underwriters and clients, said settlement of claims has become an industry problem that needs to be resolved.

“The liquidity problem is huge for some companies. It has forced a number of underwriters to send agents to scout for premiums at matatu termini for money to settle the claims,” he said.

Mr Otieno, represented by Ahmednasir, Abdikadir & Company Advocates, alleges Blue Shield has been unable to pay him claims arising from a motor vehicle related issue.

The law firm admits that the amount involved is modest but insists inability to settle the claim signals the gravity of the situation.

“It is a serious issue because it means the company is bankrupt,” said a lawyer with the company who is handling the matter. “Blue Shield refused to respond to our demand note to pay claims and ignored us when we told them we were planning to take this action,” he said.

Blue Shield is listed as the fifth largest insurer in Kenya based on gross premiums of Sh2.2 billion and an asset base of Sh3.1 billion in 2008.

It made an underwriting profit of Sh188 million in the same year even as the gross written premiums declined from Sh2.27 billion 2007, eroding its market share from 6.9 per cent to 5.9 per cent.

Blue Shield managing director, Patrick Wanjala, was said to be in meetings and could not be reached for comment.

Some insurers say the pile up in the number of claims is already building up pressure for higher commissions and larger discounts on policies to attract new customers for improved cash flows.

That money from new premiums is being used to settle claims puts the insurers in a vicious cycle that only parallels the recent on-goings in the stock market where a liquidity crunch forced stockbrokers to trade in client’s money leading to their collapse.

Some analysts attribute the liquidity problems facing insurers to their dependence on investment income to pay their claims rather than using their net premium income to do so.

Insurers fear that the suit could strike a major confidence blow on Kenya’s nascent insurance industry that remains small compared to other facets of the financial sector such as banking, micro finance and the capital markets.