Win for customers of collapsed insurers as State doubles payout to Sh500,000

The changes, which were gazetted last Friday, align with the National Financial Inclusion Strategy (NFIS) for 2025–2028, through which key State players in the financial sector, including the Insurance Regulatory Authority (IRA), had said raising the ceiling would help promote stability.

“The board of trustees of the Policyholders Compensation Fund, in consultation with the Cabinet Secretary, National Treasury, has approved that the maximum amount payable as compensation on any one claim, for all classes of insurance, shall be Sh500,000,” Mohamed Sahal, the managing trustee at PCF, said.

“This compensation limit shall apply to policyholders and claimants of any insurer that is, after the commencement date of this notice, placed under statutory management or whose licence is cancelled in accordance with section 67C (2) of the Insurance Act,” he added.

Mr Sahal said the upward review is in line with section 179 of the Insurance Act and regulation 12 of the Insurance (Policyholders Compensation Fund) Regulations, 2010, which recognises the role of PCF in the insurance sector.

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.

Read: Group to claim millions from State over bungled insurance fund

The increased insurance compensation now matches the maximum Sh500,000 per-customer compensation that the Kenya Deposit Insurance Corporation (KDIC) gives affected customers when a bank collapses.

It is not clear whether the increased maximum compensation payout will require a higher levy from policyholders. Policyholders currently contribute 0.25 percent of their premiums to the compensation fund, which is matched by their insurance companies.

PCF guarantees compensation to affected policyholders, reducing fear of institutional failure and encouraging insurance uptake among low-income and first-time users.

PCF was established under the Insurance (Amendment) Act, 2003, and became operational in 2005. It 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.

The doubling of the figure marks the first review to reflect the passage of time and inflation. The NFIS provides for a periodic review of the compensation ceiling to reflect inflation, market changes and policyholder needs.

The move is a major relief for policyholders who, in the past, have often faced lengthy and uncertain processes after insurers collapsed. 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.

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 own assets, the regulatory intervention process and insolvency laws.

Nigeria modelled its Insurance Policyholders Protection Fund on Kenya and is set to operationalise its fund following the coming into law of the Nigerian Insurance Industry Reform Act 2025 in August last year.

Globally, economies such as the US, UK and European Union countries have some of the most developed policyholders’ compensation schemes, which give priority to compulsory and socially sensitive covers such as motor liability, health and workers’ compensation.

The National Financial Inclusion Strategy provides for the creation of contingency funding arrangements and reinsurance mechanisms for PCF to prepare 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 sole authority to initiate and execute key functions such as insurer liquidation and claims handling.

→ palushula@ke.nationmedia.com

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