Over 100 insurance brokerage firms to be delisted in purge

Half of all the 213 insurance brokerage firms in the country are set to be delisted for non-compliance with the Insurance Act, effectively barring them from taking up any new business this year.

Sources told the Business Daily that only 50 percent of the brokerage firms had met the tough licence renewal conditions set by the industry regulator. One of the conditions was mandatory remittance of all outstanding premiums owed to insurance firms.

The Insurance Regulatory Authority (IRA) Thursday declined to discuss the development, but said it was compiling a list of the newly-licensed brokers.

“We will share the list of licensed intermediaries in due course,” said the IRA communications department.

The Association of Insurance Brokers Kenya (AIBK) confirmed that the regulator had declined to renew the licences of some of its members who had not cleared outstanding premiums.

“We are aware that the regulator is not giving out licences to some of our members, but we have been told that this only affected those who owed underwriters money,” AIBK chief executive Eliud Adiedo said.

The association remained non-committal on the number of brokerage firms that had been cleared to operate.

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.

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.

This means risks covered, which are in excess of Sh500 billion, are not recognised under the “cash and carry” principle.

The principle stipulates that if an insured party suffers loss before the premium is remitted to the insurer then the insured party cannot be compensated.

Insurance penetration in Kenya dropped to 2.43 percent of Gross Domestic Product (GDP) -- the lowest in 15 years -- and was partly blamed on unpaid claims. A survey by Kenbright Actuarial & Financial Services shows that 10 percent of those who had not renewed their cover attributed this to delay or non-payment of previous claims.

According to data from IRA, brokers are holding Sh14.8 billion, insurance agents Sh11.8 billion, insurers Sh8.1 billion and reinsurers Sh9.4 billion of the outstanding claims.

Brokers control 41 percent of the business underwritten in Kenya, impacting negatively on the financial position of insurance companies and putting general business below the minimum capital adequacy ratios.

However, brokers have accused the regulator of being lax and blamed it for the diversion of billions of shillings in insurance premiums that have not been paid for the last five years. They said outstanding premiums had escalated over the years from Sh26 billion in 2014, Sh29 billion in 2015, Sh34.5 billion in 2016 and Sh37 billon in 2017 to Sh43 billion last year, yet the regulator had not taken action against the rogue brokers.

The brokers are fighting the regulator in court seeking to prevent the latter from criminalising handling of cash from clients following its claims that brokers are the primary cause of delayed premiums.

In an affidavit, Mr Adiedo claims that the regulator had relied on a list that included strangers who were not among the 50 members the association represents hence casting doubt as to the total premiums the brokers have failed to remit.

“The schedule listing insurance brokers contains alleged substantial sums owed by parties who are not insurance brokers including Pipeline Sh340 million, Various Sh279 million, Asford Page and Gems Sh258 million, First Assurance Sh3.2 million various Insurance agencies and individuals,” Adiedo said.

The brokers have disputed the respective amounts alleged to be owed including H.G Thanawalla Insurance Brokers Limited which is said to be owing about Sh42 million to various insurance companies.

The said broker has fully settled this amount and there are letters from various insurance companies confirming remittance.

Some insurance brokers say they are struggling to recover millions in premiums from collapsed of companies as the regulator intensifies fight to end late payments in the sector.

The brokers also claimed that some of the outstanding premiums stemmed from payment arrangements that allowed corporates to pay in installments.

Millions in outstanding premiums are owed to customers who pay in installments and Insurance Premium Financing (IPF), a facility that enables clients to pay insurance premiums in installments rather than in one lumpsum amount.