Directline Assurance Company has been penalised Sh85 million for abusing buyer power by delaying payments to two garages it had contracted to repair damaged vehicles.
The Competition Authority of Kenya (CAK) imposed the fine on the insurer after finding it guilty of two violations of the Competition Act, each attracting a penalty of Sh42.5 million.
According to the ruling delivered by the competition watchdog on Wednesday, the insurer abused its buyer power and exercised a skewed bargaining position that favoured its interests over the welfare of its suppliers.
The decision followed a complaint filed by two garages contracted to repair damaged vehicles for Directline’s customers. The garages said the insurer had refused to pay their pending bills despite repeated attempts to have the amounts settled for services already delivered.
CAK Director-General David Kemei said the penalisation, which matches the gravity of the violations established, should remind “businesses that abuse their influential positions to disenfranchise their suppliers.”
“The penalties levied are commensurate with the gravity of the offence, as well as the conduct of the accused party during the investigation. Supply contracts between parties to a commercial relationship should be equitable and the product of candid engagements,” said Mr Kemei.
“Abuse of buyer power, which cripples suppliers, defeats the country’s aspiration of promoting inclusive economic development. SMEs are liquidity-constrained enterprises.
Therefore, failure to honour payments for work done can destroy a business and render thousands jobless.”
The complaining companies Kilele Motors Limited and Midland Autocare Limited alleged that Directline owed them Sh5 million and Sh7.6 million respectively, which the insurer delayed payments without justifiable cause and in breach of their agreement.
Directline told the regulator that its delays had resulted from temporary inaccessibility of its bank accounts after the courts froze them last year amid a shareholder dispute.
However, after sustained pressure from the regulator, the insurer paid only Sh2.9 million to Midland and Sh3.7 million to Kilele, leaving an outstanding balance of Sh6 million.
Despite repeated reminders, the insurer failed to update the authority on any challenges it was facing, ignoring a cumulative 19 formal reminders from the regulator.
“Based on the foregoing, and in line with the authority’s mandate of sanctioning abuse of buyer power in the economy, the insurance firm has been penalised Sh42.5 million for each count and ordered to honour the outstanding invoices,” said the regulator.
The authority has also ordered Directline to amend its supply contracts to include provisions for interest payments on late invoices and to desist from practices that violate the Competition Act.
This is not the first time the competition watchdog has intervened in the motor insurance industry to facilitate payment of garages and vehicle assessors.
In 2022, it compelled 18 major insurers to pay 20 vehicle repairers and assessors Sh38 million owed for services rendered, although it did not impose sanctions on the companies at the time.
