More than a third of insurance brokerage firms in the country have been denied operating licence for failing to remit outstanding premiums owed to underwriters among other reasons, effectively locking them out of business.
Official data from the Insurance Regulatory Authority (IRA) showed that 133 brokerage firms had been cleared by Tuesday last week, locking out 80. The industry had closed last year with 213 brokerage firms.
The regulator had set tough licence renewal conditions including mandatory remittance of all outstanding premiums owed to insurance firms.
Those yet to get the 2020 licences cannot transact brokerage business since IRA licences run from January to December each year.
Association of Insurance Brokers of Kenya (AIBK) National Chairman Nelson Omollo told the Business Daily on Monday that the 80 brokerage firms were engaging the regulator and more are likely to get cleared.
“The registration process is still ongoing and we are sure more will be cleared. Non-remittance of premiums was one of the conditions in a host of other criteria which brokers were supposed to meet,” said Mr Omollo.
The deadline for renewal of licence is September 30 with firms expected to pay Sh10,000. The IRA also accepts late renewals but charges a penalty of Sh10,000 in addition to normal renewal fees.
Other key conditions include statement of financial results for the year preceding application for renewal and Sh3 million bank guarantee from a commercial bank or a government bond of at least two years.
The pending approvals come at a time brokerage firms are still in court fighting the law that would have seen them barred from handling insurance customers’ premiums. Insurers want the money remitted directly to them.
IRA disclosed in court documents last year that insurance brokers were holding Sh43 billions collected from customers but not remitted to underwriters as required.
This was split between general insurers and life insurers as Sh42 billion and Sh1 billion respectively, being an equivalent of 19.8 percent of the Sh216.2 billion gross premiums that the industry underwrote in 2018. Kenya’s insurance industry operates on “cash and carry” principle meaning that if an insured party suffers loss before the premium is remitted to the insurer, then the insured cannot be compensated.
Industry players have continued to trade accusations over the matter even as businesses, individuals and households who had diligently paid their premiums remained exposed to loss of their property and investments.
IRA has been on a crackdown against non-compliant brokers, following a sharp increase in outstanding premiums that had grown to Sh43 billion, equivalent to 19.8 percent of the Sh216.2 billion gross premiums that Kenya’s 37 insurance firms underwrote in 2018.
The regulator said in previous disclosures that brokers are holding Sh14.8 billion, insurance agents Sh11.8 billion, insurers Sh8.1 billion and reinsurers Sh9.4 billion of the outstanding claims.