Brokers Squeeze Sh 43B Out of Kenyans for Ghost Insurance

Kenyans have spent Sh 43 billion in premiums on non-existent insurance covers because of shady agents who do not remit the payments to insurers.

The agents fail to remit the payments to insurers, exposing the customers to heavy losses when they make compensation claims. The Insurance Regulatory Authority (IRA) has disclosed in court documents that insurance brokers collect billions of shillings from customers but fail to remit the money to insurance companies as required. 

Apparently, the risks the insured looks to cover cannot be compensated if it occurs because it is not recognised under the “cash and carry” principle. The principle stipulates that if an insured party suffers a loss before the premium is remitted to the insurer then the insured cannot be compensated.

As a result of these agents’ failure to meet their statutory obligations, general insurers are owed Sh42 billion while companies offering life covers are owed Sh1 billion.

Premiums paid to general insurance companies represent between one and five percent of the value of the risks covered, meaning that customers expect to be protected from losses of much higher values. Failure to remit the premiums, as is done by most Kenyan agents, results in no compensation to the customers when the risk occurs.

The Sh43 billion is equivalent to 19.8 percent of the Sh216.2 billion gross premiums that Kenya’s 37 insurance firms underwrote last year. In 2014, unremitted premiums stood at Sh 26 billion but they have piled up over the years to get to Sh 43 billion in 2019.

Policies covering motor vehicles have the highest premiums of between 4% and 5% of the value of the vehicles. Other policies in the general insurance segment include engineering, domestic fire, industrial fire, medical and theft.

In July this year, the Insurance Act was amended barring brokers from handling cash on behalf of insurers. However, the brokers received a temporary court injunction allowing them to continue receiving the premiums until the dispute is determined.

The insurance regulator has disclosed the pile of insurance premiums held by brokers in a court case where the agents are fighting a law that bars them from receiving customers’ payments on behalf of insurers.

Brokers listed as the biggest defaulters are Minet Kenya, which owes underwriters a total of Sh1.5 billion, followed by D&G (Sh441.5 million) and Zamara Risk & Insurance (Sh358.5 million).

The Association of Insurance Brokers Kenya (AIBK) — the agents’ lobby group — argues that the ban on cash handling, contained in the Insurance (Amendment) Act No. 11 of 2019 & Regulations, will drive its members out of business.