Insurance clients tap Sh6.5 billion policy loans

Covid-19 heralded unprecedented disruption that permanently redefined our post-2019 concepts of business normalcy. PHOTO | SHUTTERSTOCK

Outstanding insurance customer loans tapped from listed insurers hit Sh6.46 billion last year, up from Sh6.09 billion the previous year, pointing to the sustained appetite for the facilities that rely on policies as collateral.

Filings by the five insurers listed on the Nairobi Securities Exchange show that fresh loans tapped against life insurance covers during the year ended December were highest in Britam Insurance where customers borrowed Sh2.22 billion to take the policyholders’ loan book to Sh2.64 billion from Sh2.29 billion.

The popularity of insurance policy-backed loans started gaining relevance at the height of the Covid-19 pandemic, as customers facing economic fallout opted to tap the loans and avoid pulling out of their policies.

Jubilee Insurance’s policy loan book rose by 14.9 percent to Sh1.62 billion as it issued fresh loans valued at Sh252.1 million during the year.

The insurer says it advances such loans to policyholders who have attained cash or surrender value after three years.

“The loans are of two types: automatic premium loans, which are loans to update the policy, and policy loans. There is no exposure on credit risk with respect to loans which are pegged and do not exceed the cash surrender value,” says Jubilee in the latest annual report.

Liberty’s policy loan book, part of which includes loans to staff, retreated from Sh1.65 billion to Sh1.4 billion in the year that CIC Insurance saw such borrowings rise from Sh594.7 million to Sh658.8 million.

CIC says its policyholder loans were priced at eight percent last year, which is lower than the commercial banks’ average of 13 percent.

Sanlam Kenya also dropped from Sh154.98 million to Sh146.29 million.

Insurers rarely make provisions for losses against policy loans since they are usually secured by premiums.

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