The government plans to double the maximum compensation to policyholders of collapsed insurance companies to Sh500,000 per claim in a move to shield customers from losses.
The National Financial Inclusion Strategy (NFIS) for 2025-28, which has been prepared by key State players in the financial sector, including the Insurance Regulatory Authority (IRA) and Central Bank of Kenya, says raising the ceiling from the current Sh250,000 will help promote stability.
Insurance customers are currently compensated up to Sh250,000 per claim when an insurer is placed under statutory management or has its licence revoked. The compensation is handled by the Policyholders Compensation Fund (PCF).
PCF guarantees compensation to affected policyholders, reducing fear of institutional failure and encouraging insurance uptake among low-income and first-time users. However, NFIS notes that the figure now needs adjustment to reflect the passage of time and inflation.
“Establish a periodic study review mechanism for the compensation ceiling based on inflation, market changes, and policyholder needs from the current Sh250,000 to Sh500,000 per claim,” reads the NFIS in part.
PCF was established under the Insurance (Amendment) Act 2003 and became operational in 2005, and has maintained the Sh250,000 limit over the past two decades.
The fund’s size crossed Sh10 billion at the end of June 2023 when the levy for that year was Sh788.26 million.
Kenya’s insurance sector has seen the collapse of several insurance firms, including United Insurance, Standard Assurance, Concord Insurance, Blue Shield, Resolution Health, Invesco and Xplico Insurance, highlighting the need for a strong compensation fund.
PCF holds the record as Africa’s first insurance guarantee scheme and is, therefore, seen as a model for the continent.
South Africa, which has the highest insurance penetration in Africa, has no central pool of money to step in and immediately compensate policyholders. Protection depends on the insurer’s assets, the regulatory intervention process and the insolvency laws.
Nigeria modelled its Insurance Policyholders Protection Fund on Kenya and is set to implement its fund following the coming into law of the Nigerian Insurance Industry Reform Act 2025, which became law in August.
Globally, economies such as the US, UK and European Union countries have some of the most developed policyholders’ compensation schemes that give priority to compulsory and socially sensitive covers like motor liability, health and workers’ compensation.
If Kenya increases the limit, the insurance compensation will match the maximum of Sh500,000 per customer compensation that Kenya Deposit Insurance Corporation gives when a bank collapses.
The savings and credit co-operatives sector is also in the race to introduce compensation, even though the targeted figure is yet to be disclosed.
The regulators are also seeking the creation of contingency funding arrangements and reinsurance mechanisms for PCF to prepare it for large-scale insurer failures and ensure timely full compensation to affected claimants.
In addition, the strategy also calls for amendments to the Insurance Act to grant PCF the sole authority to initiate and execute key functions such as insurer liquidation and claims handling.
“By implementing [these] strategies, PCF can address existing gaps, strengthen public confidence in the insurance sector, and play a more effective role in advancing Kenya’s financial inclusion agenda,” reads the strategy.
It is not clear if increased compensation payout will require increased levy from policyholders. Policyholders contribute 0.25 percent of their premiums to the compensation fund, which is matched by their insurance companies.
The proposal to double compensation is expected to be a major relief for policyholders who, in the past, have often faced lengthy and uncertain processes after insurers collapse.
Cases such as Concord Insurance, Standard Assurance and United Insurance, which left thousands of claimants stranded, have highlighted the need for an adequately funded compensation system.
