The National Treasury says it will allow the Insurance Regulatory Authority (IRA) to shut down underwriters that have not complied with stricter capital requirements introduced in June 2020.
Treasury Cabinet Secretary Ukhur Yatani said it was time the insurance industry was consolidated to have fewer stronger players rather than the current situation where many underwriters lack sufficient capital but continue to operate.
This exposes clients to the risk of major losses, with the maximum guaranteed compensation standing at just Sh250,000.
Resolution Insurance collapsed recently while others like Madison Life Assurance Kenya Limited have reported capital shortfalls.
“I know IRA has been on my case a number of times to deal with certain companies that are not living to expectations but because of sometimes the economic climate particularly around Covid we had a number of challenges we said let us not aggravate already serious situation. But I think it is time for cracking the whip,” Mr Yatani said.
“We would rather have few companies but reputable ones rather than having all sorts of companies that are ailing and the faith in the industry disappears.”
He made the remarks during the launch of the strategic plan of the Policyholders Compensation Fund (PCF) which compensates clients when insurers collapse.
Insurance firms were spared from making cash calls to increase their capital or risk closures for nearly two years since the June 2020 deadline for migrating to the new risk-based supervision regime.
The IRA had set new capital adequacy requirements requiring companies to meet 200 percent (previously 100 percent) of the minimum capital requirements by 2020 but enforcement was suspended.
When IRA last issued a review on compliance nearly 20, or a third of the 56 licensed insurance companies had failed to comply with capital requirements.
The minimum capital required for the general insurance business is Sh600 million while life and composite underwriters must put up Sh400 million and Sh1 billion respectively.
Some strong insurers have started the process of complying with the stricter capital requirements, providing more than 100 percent of the minimum levels as they seek to hit the 200 percent threshold.
The risk-based capital system is designed to ensure that underwriters can remain in business while meeting their obligations to policyholders and other stakeholders.