Concord Insurance has become the latest in a long line of insurers majoring in motor vehicle covers to be placed under statutory management for failing to pay claims.
The Insurance Regulatory Authority (IRA) said the company was also not meeting its obligations to other creditors.
“The insurer is also not able to meet its statutory obligations including the payment of levies as prescribed in the Insurance Act. Concord Insurance Company is, therefore, not authorised to transact new business henceforth,” said IRA Chief Executive Officer Samuel Makove.
Mr Charles Makone, who previously served as CEO of Monarch Insurance company, has been appointed as the statutory manager.
The insurer mainly underwrites private and commercial motor businesses with industry data indicating that it had premiums of Sh95.2 million under motor private and Sh57.5 million under motor commercial in 2011.
However Mr Simon Kimutai, the chairman of Matatu Owners Association said the company did not cover passenger service vehicles (PSVs).
“PSVs are covered only by four companies, which are Directline, Gateway, Amaco and Invesco,” said Mr Kimutai.
However, Isaac Ng’aru, an industry expert, said the fall of Concord would have reverberations in the industry.
“Any company going down affects the image of the industry as a whole,” said Mr Ngaru, a managing partner at Ngaru and Associates.
Being under statutory management, the company is not allowed to accept any new business or do any underwriting.
IRA has introduced new regulatory policies including capping the maximum shareholding of an individual in an insurer in efforts to stabilize the sector.
The writing was on the wall for a company which as at end of 2011 held 0.3 per cent market share with gross premiums of Sh181 million. Two years earlier it controlled 1.57 per cent of the market with Sh675 million in gross premium.
Last year, the regulator appointed three of its own staff to the board of Concord Insurance but was unable to stem the operational and financial difficulties.
“It, however, became apparent by the latter part of 2012 that the company was experiencing liquidity challenges and high loss ratios coupled by rapid reduction in premiums written,” Mr Makove said.
Sources within the industry said that efforts by the insurer’s majority shareholders to raise capital by selling some of their stakes that were above the statutory maximum of 25 per cent were unsuccessful.
Concord, which operates three branches and has 67 employees, reported a net loss of Sh10.9 million in 2011.
The company has crossed the hairs of the regulator severally with IRA noting in its 2011 annual report that it did not meet the statutory deadline for renewal of registration in 2012. It was also late in submitting the audited accounts and returns for 2011 to the regulator.
“The company has been facing a number of challenges particularly relating to its ability to mitigate its inherent risks, inviting the commissioner to intervene on several occasions,” said Mr Makove.
However, Mr Ngaru pointed out that the collapse was an indication of more deep-rooted problems within the sector with undercutting being a major problem.
“Companies are not looking at risk but going for premium due to competition such that the premium is much lower than the risk undertaken in some classes,” he said.
Last year, the regulator had promised to issue new risk guidelines meant to effectively implement risk based supervision in the industry but it did not keep its word.
“We pride ourselves in providing innovative and cost effective products which in turn helps us retain our large client base,” Concord boasted on its website.
Part of the new rules were to require insurance firms to create four independent functions - risk management, compliance, actuarial and internal audit that would report to the board of directors.
Huge exposure to the PSV sector has over the last decade caused the collapse of several insurance companies.
In 2005 United Insurance fell with Sh2 billion in unpaid claims. Four years later Standard Assurance collapsed with 1.2 billion in unpaid claims.
IRA has formed a fraud investigations department under to help address gaps in the PSV sector including fraudulent claims and forged covers.
Criminal syndicates involving the police, insurance assessors, garages, and insurers are believed to be behind the fraud that affects have all claims lodged.
The industry estimates that 50 per cent of all claims are fraudulent and this was the basis on some insurers seeking court protection to investigate all the claims.