Insurance companies to pay clients Sh250,000 on collapse
The Association of Kenya Insurers chief executive Tom Gichuhi. PHOTO | SALATON NJAU
What you need to know:
The amount is an increase of Sh150,000 from the Sh100,000 that PCF was to be paid in the event of insolvency.
The PCF is the equivalent of Kenya Deposit Insurance Corporation the deposit insurer for commercial banks, which compensates depositors when a bank collapses.
Experts said the move would give a much needed boost to the budding Kenyan insurance sector dented, especially by failures of public service vehicle insurers.
Policyholders of collapsed insurance firms in the country will now get maximum compensation of Sh250,000 in legal changes announced by the Policyholder Compensation Fund (PCF).
The amount is an increase of Sh150,000 from the Sh100,000 that PCF was by law obligated to pay in the event that an insurance company is declared insolvent.
The PCF is the equivalent of Kenya Deposit Insurance Corporation the deposit insurer for commercial banks, which compensates depositors when a bank collapses.
“It is notified for the general information of the public that, pursuant to the provisions of the section 179 of the Insurance Act and regulation 12 of the Insurance (Policyholders Compensation Fund) Regulations, 2010, the board of trustees of the Policyholders Compensation Fund gives notice that the amount payable as compensation on any one claim for all classes of insurance shall be capped at Sh250,000 until further notice,” said John Keah, the PCF head of secretariat in a gazette notice dated January 5.
The insurance sector has welcomed the raise.
“The increase comes after an actuarial study that showed the fund could pay more than the Sh100,000, a limit that was modelled around deposit insurance in the banking industry,” Association of Kenya Insurers (AKI) chief executive Tom Gichuhi told the Business Daily.
Experts said the move would give a much needed boost to the budding Kenyan insurance sector dented, especially by failures of public service vehicle insurers.
“It is a positive development meant to inspire confidence in the insurance industry given that the industry has in the past witnessed closure of six insurance companies.
“Following what happened in the banking industry, the move is aimed at protecting small-scale investors who are using insurance products as a form of savings and for other investment purposes,” said Cytonn investment manager, public markets, Maurice Oduor.
The PCF was established in 2004 following reforms undertaken in the insurance sector in response to the collapse of several insurance companies which led to policyholders’ exposure to risk and losses of insurance benefits.
By safeguarding the interests of policyholders, the fund is seen to contribute to the stability of the insurance industry by enhancing confidence.
Despite the existence of the fund, however, the compensation process has been on the spot as payment could only be effected when a company had been wound up and liquidation done.
As such nobody has since been paid by the fund.
“The failed insurance companies have been put under statutory management in the expectation that they can be revived,” said Mr Gichuhi on the legal hiccup.
Policyholders of insurance companies that collapsed before the fund started receiving contributions in January 2005 do not qualify for compensation from the fund.
They include Stallion Insurance Company Ltd, Access Insurance Company Ltd, Kenya National Assurance Co. Ltd, Lakestar Insurance Co. Ltd and United Insurance Company Ltd.
In his Budget speech for the financial year 2016/17, Treasury secretary Henry Rotich proposed to reduce the time taken to settle claims from 90 days to 30 days.
Insurance companies are mandated to remit contributions collected to the PCF on a monthly basis.
Both policyholders and insurance firms contribute 0.25 per cent of premiums payable in respect of a policy issued by an authorised insurance company.
The fund is said to be sitting on upwards of Sh5.3 billion.
