High Court halts vehicle insurance reward scheme

The High Court has suspended a scheme by insurance companies to reward accident-free motorists with lower premiums until a case brought by transporters is determined.

Mr Justice Jackton Ojwang’ shelved the plan for 21 days and ordered the Insurance Regulatory Authority (IRA), which introduced the changes, to file its defence within the period.

The Kenya Transporters Association moved to court claiming the rules were illegal since the Insurance Act did not give the authority powers to make the changes.

The rules amounted to price fixing, contrary to the provisions of the Restrictive Trade Practices Monopolies and Price Control Act, the transporters said of the guidelines introduced in March this year and which raised the premium for new drivers to 7.5 per cent of the car’s value from a maximum of 4.5 per cent.

The rules were aimed at curbing losses in the private motor vehicle insurance by rewarding accident-free private and commercial drivers with discounted premiums on the next annual renewal of their covers. Insurers have blamed the losses on careless driving and fraud.

The immediate impact of the ruling is that vehicle owners and transport companies can negotiate premiums with insurance companies based on individual needs and not what is set out by IRA.

The Association of Kenya Insurers (AKI) has been working on the calculations on discount levels for every motorist on behalf of the companies and has been giving motorists certificates indicating the eligible level of discount.

IRA chief executive Sammy Makove asked motorists to demand a certificate from AKI for information on the discount, when the guidelines were released.

The applicants Kiprop Bundotich, Paul Maiyo, Minesh Pandya and Sam Machio were allowed to apply for an order of prohibition, restraining the respondent, its board of directors and chief executive from enforcing the guidelines.

They had told the court that the mandate of IRA did not extend to fixing or prescribing fees, charges or premiums to be levied by the insurance and reinsurance business for services given to policy holders and insurance beneficiaries.

If the suspension holds, it will be a major loss for insurance companies underwriting private motor vehicles because the high level of fraud has meant that they make little or no profit from this category of business.

In 2009 for example, private motor insurance had the highest loss ratio in all insurance categories amounting to 80.8 per cent.

Out of a total of Sh5.9 billion premium payments, Sh4.7 billion was paid out as claims.

This is way above the payment management breakdown that allocates 50 per cent of the premium to claims, 30 per cent to management expenses and 10 each for commissions to agents and shareholder profits.

Personal accident was second at 68.1 per cent followed by commercial motor insurance at 58.6 per cent.