Markets & Finance

Insurance brokers in liquidity crisis following Treasury cash guidelines

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Nelson Omolo, chairman of Association of Insurance Brokers of Kenya. PHOTO/JEFF ANGOTE

Insurance brokers have since last year grappled with tight liquidity that has threatened their business following introduction of new cash rules, the trade umbrella association says.

Chairman of the Association of Insurance Brokers of Kenya (AIBK) Nelson Omolo said many brokers have opted to close shop weighed down by piling debts. The number fell by as much as a third in 2015 alone.

“Since no credit can be extended to clients, in case at the end of the financial period you have uncollected debts, one is forced to go back to shareholders to put in an equivalent of the outstanding debt. This places brokers who may not have the required financial might in a very difficult position leading to closure of some brokerages,” he said.

Mr Omolo also attributed the attrition to the advent of risk-based supervision, which he said places responsibility on underwriters and brokers to collect premiums immediately.

The same rules do not apply to insurance agents. The latest industry report shows licensed insurance brokers in the country fell by nearly a third to 139 last year from 198 in 2014 as the rules took a toll.

According to the 2015 annual report by the Association of Kenya Insurers (AKI) released Wednesday last week, the current numbers are much lower than the 187 brokers recorded in 2013. There were 170 brokers in 2012 and 168 in 2011.

Brokers and agents are the main avenues for pushing penetration of insurance in Kenya, which stood at 2.79 per cent last year and lags behind a number of African markets such as South Africa whose penetration stands at about 14 per cent.

Mr Omolo said the lobby is still canvassing the State against Kenya Revenue Authority (KRA) multi-billion shilling tax demand, which it says threatens to take down more underwriters.

READ: KRA hits insurance brokers with Sh2.4bn past tax demand

The disputed bill is related to unpaid excise taxes on commissions earned between July 2013 and December last year when the law exempting them from paying the levy was repealed.

“Most brokers do not have the required capital to settle the huge amounts of money being asked for by the tax man,” Mr Omolo said in the interview.

The IRA data shows that between July 2013 and December 2015 the brokers were paid commissions amounting to Sh23.85 billion, meaning that they owe the KRA Sh2.39 billion in unpaid taxes before penalties.