Industry

CAK rolls out plan to curb insurance, retail contracts row

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Francis Wangombe, CAK director-general. FILE PHOTO | NMG

The Competition Authority of Kenya (CAK) has developed template contracts for the insurance and retail sectors to reduce disputes in delayed payments and unfair termination of contracts by insurers.

The draft contract will now be reference point for both parties in case of dispute resolution exercises involving the authority, and are also expected to reduce incidents of abuse of power.

The insurance contracts targets inspectors, loss assessors, underwriters and agents.

This comes amid increased complaints against insurance companies from motor vehicles garages and loss accessors for delayed payments.

The medical insurance sector has also recorded high complaints from small and medium sized hospitals and clinics over delayed payments of patients’ medical expenses after treatment.

“The authority expects that the template contracts if applied will minimise conflicts between contracting parties in the retail and insurance industry and which have invited the Authority intervention,” CAK said.

The insurance sector registered the majority of investigated abuse of power cases at 38 percent since 2018. The new rules are contained in the Retail Trade Code of Practice and will also target supermarkets and shop owners whose payment defaults have caused suppliers cash flow troubles. The contract is expected to protect the suppliers of services and facilitate legal action in case of abuse of buyer power.

A growing number of retail companies have in the recent years become notorious for delayed payments, abuse of buyer power when negotiating supplier prices, termination of contracts without notice and transfer of costs to suppliers, threating their survival.

Recently, CAK published regulations that will see defaulters pay interest for late payment and disputed invoices settled within 30 days from agreed period.

Companies abusing buyer’s power are liable to a Sh10 million fine, and this may also include a penalty of 10 percent of their annual gross turnover.

“In order to cultivate a culture of contracting parties adopting written commercial agreements and facilitate compliance with Competition Act, the Authority has developed model contracts for use by buyers and suppliers in the retail and insurance sectors,” it added.