Brokers win first round in insurance clients’ cash case

The High Court has offered a major reprieve to insurance agents and brokers by suspending a new law that barred them from receiving customers’ premium payments.

The law, which came into effect on July 23, is now suspended until an application filed to stop it is heard on September 26.

“The coming into force of the Insurance Amendment Act 2019 is hereby stayed pending the application,” Justice John Mativo stated in the order.

The amendment to the Insurance Act made it illegal for brokers and agents to handle insurance premiums.

“An intermediary shall not receive any premiums on behalf of an insurer,” read part of President Uhuru Kenyatta’s memo to MPs advising the legislators to change the law after they had initially failed to pass it in Parliament.

Those in breach faced a penalty of 20 percent of the unremitted premiums.

Insurance brokers

The Association of Insurance Brokers Kenya (AIBK), with 150 members, argued that criminalisation of handling cash will send brokers out of business and adversely affect their 5,000 employees.

“The contentious law fails to strike a balance between views and recommendations of the petitioners and the need to protect policyholders from rogue intermediaries,” says Eliud Adiede, the AIBK CEO.

The government is trying to eliminate brokers from handling premiums after it emerged that some of them divert the cash to other businesses, exposing paying clients to breach of contract, leading to problems settling claims.

Out of the Sh117.49 million outstanding claims as at January, only Sh389,000 was paid in the three months to March this year.

Brokers lobbied Parliament for a compromise pushing instead for a penalty to be introduced to address the issue of embezzlement of premiums.

MPs then approved a Bill that allowed brokers to receive premiums, but forward the cash to insurers within 14 days.

When the Bill went for presidential assent with the brokers’ recommendations however, he refused to sign it taking sides with the Treasury which had sought to lock out brokers.

Intermediaries

The President said that allowing the handling of premiums by intermediaries negated the principal of Cash and Carry, which in turn affects the ability of companies to pay claims since most of the premiums are held by the intermediaries.

He returned the Bill to Parliament with recommendations to revert to the 2018 draft, which was later passed and approved.

Subsequently, the matter became law last month prompting the move to court to stop it from being implemented.

AIBK argues that Mr Kenyatta overreached in recommending the 2018 draft arguing the sanctions to deal with errant brokers were already in place in the previous law and only needed strengthening as opposed to a complete repeal.

They also faulted the law for double standards, allowing insurance firms to hold onto their commissions for 30 days in effect extending their credit period.