Insurance agents are either considered captive agents or independent. In Kenya, they have to be registered by the Insurance Regulatory Authority (IRA) with their licences renewed every year.
While captive agents work for one insurer, with some earning a combination of a fixed retainer and sales-based commission, independent agents sell different types of policies for multiple companies and only earn a commission.
Kenya’s insurance market had 14,648 agents at end of December 2023, marking a 63.6 percent increase from 8,955 in 2018.
Who is an insurance agent?
An insurance agent represents one or multiple insurance companies and sells their policies, usually for a commission. The agent works with prospective insurance customers to understand their budget and suitable insurance product. This ensures that a customer buys the right cover at a price they can afford.
How crucial are insurance agents?
Agents account for the bulk of the insurance industry’s gross written premiums, making them a lifeline for many insurance companies. In 2023, 49.9 percent of the total industry premium was sourced through insurance agents while 30.3 percent and 19.9 percent was through insurance brokers and direct business respectively.
How do insurance agents make money?
Insurance agents earn income by receiving a commission from the insurance company for each policy they sell or renew. Many insurers also pay captive agents a monthly retainer but this is usually based on them hitting a given target in terms of minimum number and value of premiums sold.
What is an insurance agent commission?
This is the percentage of the premium that agents earn for selling an insurance policy. It is the primary way most agents get paid, especially for independent ones. Their commission structure varies depending on the type of insurance product, the company they represent, and the volume of policies they sell.
Typically, some classes of insurance fetch higher commissions than others. The commission on new business is also higher than on renewal of a policy.
The Insurance Act obligates agents to immediately deposit or dispatch to insurers the premiums they receive from customers.
Agents’ commission depends on their type, policies they sell, number of insurance policies sold and whether they are new or a renewal.
What does the Insurance Act say about insurance agent commissions?
Sections 74 and 75 of the Insurance Act obligates insurers to only charge premium rates as per the manual filed with the IRA. The Insurance Regulations updated in 2023 set a maximum limit of commissions as a percentage of premiums.
For example, under short-term insurance, the maximum commission under medical, theft, motor vehicle and aviation is 10 percent of the premium and 20 percent under engineering, domestic fire and personal accident insurance.
The highest permissible commission under short-term business is industrial fire (25 percent), followed by personal accident and workmen compensation (20 percent each) marine cargo and other transit at 17.5 percent.
Under the life business, the maximum rates of commission range between one percent and 50 percent in the first year and then fall over time.
Why does the IRA set caps on commissions?
Commissions represent the second highest operating cost of insurance companies after claims payments.
Restriction on commissions is necessary so that insurers control their operating costs and remain with enough money to settle claims. The limit is also meant to ensure a level playing ground since leaving it open can trigger a competition to win agents, leading to higher operating costs at the expense of policyholders.
IRA data shows commissions under direct insurance business rose by 23 percent to Sh17.03 billion in 2023 from Sh13.84 billion in the previous years, marking a faster rise than the 16.7 percent increase in gross premium income to Sh361.36 billion from Sh309.72 billion.
Why is IRA concerned when insurers breach commissions cap?
The regulator is concerned that some insurers are paying generous commissions to intermediaries and discounted premiums to customers in what presents a recipe for registering big jumps in sales at the expense of future profits and sustainability.
Many insurers spend about three years to recoup the costs of onboarding customers for products such as life covers. Therefore, those paying excessive commissions end up taking a much longer time before starting to generate a return from such covers.
