Court hands insurers free hand in deciding vehicle premiums

The Court of Appeal in September 2024 upheld a High Court decision that blocked IRA from setting minimum premium prices for motor vehicle insurance.

Photo credit: Shutterstock

The High Court has granted insurance firms a free hand in setting premiums for underwriting vehicles, setting the stage for higher payments on vehicles deemed too risky.

The court, in dismissing the 2022 case in which the Kenya Human Rights Commission (KHRC) had sued insurers for increasing premiums for older vehicles, said insurers operate in a free market and customers are free to pick an insurer of their choice.

The dismissal of the KHRC case in which it had sued the Insurance Regulatory Authority (IRA) and Association of Kenya Insurers (AKI), lifts the January 12, 2022 injunction that had stopped insurers from increasing prices on vehicles older than 12 years or valued at less than Sh600,000 by as high as 50 percent as well as denying them comprehensive cover.

“There is no requirement in law that the respondent (IRA) approves the increase of premiums or sets premiums for different insurance companies which are private business entities in a free-market economy. As attested by the interested parties (AKI), they are responsible for pricing their products based on the assessment of the risk factors the product may attract,” said Justice Mugambi in a judgment dated December 20, 2024.

“The petitioner (KHRC) does not cite any legal provision that mandates the respondent to set or approve those premiums. How setting premiums based on market factors by a private entity becomes a constitutional question in a free-market economy is difficult to fathom.”

The outcome of the case sets the stage for insurers to start increasing prices on such vehicles or denying them comprehensive coverage. Motor vehicle insurance has been loss-making for the industry for decades and many insurers have been responding with higher premiums for new customers or stopping insuring several brands of vehicles.

IRA data shows insurers posted Sh5.92 billion underwriting loss from motor vehicle covers in the financial year ended December 2023, marking a 22 percent cut from Sh7.59 billion loss in the previous year but a continuation of a streak of losses.

KHRC had argued that several insurers had in 2022 resolved to increase premiums by up to 50 percent and stop comprehensive covers for vehicles older than 12 years or whose value is less than Sh600, 000 without a “reasonable basis” or public participation.

According to the Commission, the move was a departure from the practice where premiums were based on four percent of the value of each vehicle and therefore it argued the rise violated principles of consumer protection. It viewed the move to deny some vehicles comprehensive covers as “discriminatory, punitive, and oppressive.”

However, the High Court agreed with the IRA’s argument that owners of motor vehicles are at liberty to use whichever insurer whose terms they find fit for their purpose and that it is not against the law for businesses to determine their prices independently and to inform their clients of the same.

AKI had told the court that its members consider various factors when setting premiums, including policy holder’s past record, the anticipated losses experienced and the level of risk they are exposed to when they provide the cover.

This is the latest legal development affirming individual insurers’ place in setting premiums.

The Court of Appeal in September 2024 upheld a High Court decision that blocked IRA from setting minimum premium prices for motor vehicle insurance.

The appellate court found the Motor Insurance Guidelines issued in 2009 in which the IRA was seeking to set the minimum premium at seven percent of the value of a vehicle to be irrational, unreasonable, and disproportionate.

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.