Unpaid claims land insurer class action court battle

Policyholders have filed a multi-million shilling class action suit against an insurer they accuse of refusing to pay claims in time, opening a new battlefront in an industry where growth has remained flat in the past 24 months.

The suit against motor vehicle underwriter Blue Shield is the first of its kind in Kenya and opens a new chapter in a fragile market that has recently been hit by stagnation and a steep rise in the number of claims.

People familiar with the industry said failure to settle claims is symptomatic of the liquidity crisis that the underwriters have been facing since the stock market crashed in early 2008 closing an important revenue artery that kept them afloat.

In a suit filed through Nairobi law firm, Ahmednasir, Abdikadir & Company Advocates, Blue Shield’s clients want the company wound up on grounds that it cannot meet its obligations in the marketplace.

When the case goes before court on May 21, Blue Shield is expected to face hundreds of plaintiffs who have been building up their numbers by inviting more of the company’s disgruntled customers to join the suit.

The action reflects the challenge insurance companies are facing in settling their claims, especially after the stock market was hit by a prolonged bear run that wiped out the value of equity investments tacked away for such eventualities.

The suit against Blue Shield marks yet another signal of the level of risk that motor insurers face in the Kenyan market coming after last year’s collapse of Standard Assurance.

Other insurers in the same line of business — Access, Stallion, Lakestar and United have collapsed with billions of shillings in unpaid claims that the underwriters blame on high level fraud.

Two weeks ago Invesco Insurance was lifted from receivership after Matatu Owners Association acquired an 80 per cent stake in the company.

Invesco has more than 4,000 unpaid claims it wants vetted for fraud before payments are made.

Sector regulator, the Insurance Regulatory Authority (IRA), says the suit reflects the steep rise in the number of consumer complaints it has received on delayed settlement of claims.

Last month, IRA confirmed that complaints over delayed payment of claims had shot up sharply in the past six months, but fell short of publishing the figures.

The Insurance Act law requires that all approved insurance claims be paid within three months, and empowers the IRA to charge underwriters a penalty of five per cent on the outstanding amounts.

Inability to pay claims and accrued interest are among the grounds that can be used to petition the courts to wind up an insurance company.