Companies’ group insurance payments drop to 6-year low

Companies’ annual insurance payments for death, injury and disability covers fell to the lowest level in six years, driven by job cuts that followed the coronavirus pandemic.

The Insurance Regulatory Authority (IRA) data shows group life premiums dropped 12 per cent to Sh9.71 billion, highlighting the impact of widespread job cuts as firms reacted to sharp falls in revenues.

Group life insurance mainly covers workers from death, total disability and critical illnesses and the size of premiums agreed between an employer and an underwriter is pegged on the number of employees.

Association of Kenya Insurers (AKI) chief executive Tom Gichuhi said the job losses witnessed last year led to declines in group life premiums given that a few companies were able to maintain or increase staff size.

"The fall is to do with job losses. When employees exit, the employer communicates with the insurance firm so that the premiums are either reduced or a credit given," said Mr Gichuhi.

"Where a credit is given, it means the premiums that will be paid when the group credit life is being renewed will be lower."

Layoffs and salary cuts were last year reported in sectors such as hospitality, aviation, entertainment, horticulture and media as Covid-19 control measures such as lockdowns and curfews disrupted business models.

Mr Gichuhi clarified that the temporary salary cuts witnessed last year did not impact the level of premiums since the employees were still in service.

"Unless the pay cuts was going to be a permanent feature, then you can review. What affects premiums is when employees are sacked and removed from payroll," said Mr Gichuhi.

Good faith

Maximum benefits to employees under group life cover are a multiple of one’s annual salary—mostly between three and five times— or an agreed fixed sum.

Group life covers are highly dependent on the principle of utmost good faith, which requires a company to make disclosures when it hires or lays of staff so that the insurance firm can settle on appropriate premium.

"A company has to declare new employees and their salaries once they are confirmed into employment.

“The company is then charged the requisite additional premium of the new employees for the outstanding period," said Mr Gichuhi.

However, insurers have in the past complained over the low level of disclosure which has seen insurance firms leave premiums unchanged even when firms grow their staff sizes.