When the Kenyan budget was read back in 2018 in the month of June, expectations were high for the insurance industry that the budget would create an enabling environment to do business.
Various proposals had been fronted from our organisation on what we would want to be included in the budget, among them the recognition of the various industry associations, ours included, and how they would be encompassed into the Insurance Act. However the proposals were not what we expected and the main issue that came out in the Insurance (Amendment) Bill 2018 was that it would be criminal to handle insurance premiums from then on by amending Section 156 of the Insurance Act. What is important to remember is that Section 156 of the Insurance Act talks about premiums handling.
To quote subsection (3) “A premium collected by an agent or a cheque received by him shall be deposited with, or dispatched and received by, the insurer before the commencement of the insurance cover”.
Our organisation that caters for the welfare of insurance agents in Kenya namely, Bima Intermediaries Association of Kenya (BIAK) decided to come up with counter-proposals to the proposed amendment in the Act so that it would be debated in Parliament when it came up for the Second Reading of the House. We crafted our rejoinder to the amendment proposals by borrowing from the International Association of Insurance Supervisors (IAIS) which adopts Insurance Core Principals (ICPs) that provide a globally accepted framework for the supervision of the insurance sector.
The proposals in the budget aimed at deleting the whole of Section 156 of the Insurance Act instead of repealing certain subsections and which we felt would provide a more sober approach to the issue of premium handling by the intermediaries. We felt that the proposals as fronted by Treasury would negatively affect insurance penetration in this country. We also noted that there was no stakeholder involvement in this proposal and which caught everyone by surprise.
We would have preferred that a penalty be introduced in Section 156 to address the issue of any embezzlement of premiums. Parliament accepted our argument in our counter-proposal to the Insurance (Amendment) Bill 2018 Act and we waited for it to be passed at the Second Reading of the House. However, President Kenyatta refused to assent to our recommendations rendering insurance premium handling—the mere touching of a client’s cheque—a criminal offence and not embezzlement as would have been expected.
The only reason the President gave for refusing to assent to our proposals was that by allowing for the handling of premiums by intermediaries, which they have always done anyway, it would negate the principal of Cash and Carry which would in turn affect the ability of companies to pay claims since most of the premiums will be with the intermediaries. That was a paradox in itself because the principal of Cash and Carry means you get your cover upon payment, which was being practiced.
At this point it would be noteworthy to point out that over ten insurance companies in Kenya are not paying claims, whether by default or otherwise. There is no single company that has complained of delayed premiums or in effect named any of those that could be delaying their premiums. They are simply not paying claims because they have mismanaged their finances.
In any way the Insurance Act is very strict on the non-payment of premiums by intermediaries’ and their licenses are at stake should one fail to pay.
It is also important to point out that since the entry of banks into the insurance field a lot of bad blood has been created, mainly caused by banks encroaching on and forcing our clients to take up insurance with them. Our pleas to Insurance Regulatory Authority (IRA) have gone unheeded even when we point out that banks are doing insurance business in an unorthodox manner. But then banks cannot let go of insurance broking at all because it has given them free money to trade with, in the form of premiums. Banks never remit insurance premiums to insurance companies unless when forced to do so. They simply do not follow the insurance rules as stipulated. Why they are never penalized or chastised is any one’s guess.
The only gainers of this action by the President is the banks because it seems insurance will only be done by them. We also know the owners of banks in this country are the politically connected ones.
The import of the President’s refusal to assent to the Insurance (Amendment) Bill 2018 has a number of grave implications. At the top is stalling the growth of insurance in this country. Insurance in Kenya is sold and not bought. We all know that the growth of insurance since independence and even before has been largely effected by insurance agents and who have always been in their thousands.
There is practically no one in this country who does not know of an insurance agent and over ninety per cent of the insureds have interacted with an agent at one point in time. By criminalizing premium handling, it will become impossible to do insurance business as that is akin to selling your wares while you have closed the door. The many thousands of intermediaries will have to look elsewhere for a job.
Why is the government creating unemployment and going against its Vision 2030 objectives?
Another culprit is insurance broking. Insurance brokers play a very big role in the growth of insurance and are mainly owners of corporate business. They canvass for insurance business, advise their clients and even settle small claims on behalf of their principal. It is a rule that brokers receive monies on behalf of their clients and later remit to the principal. Insurance broking has effectively been killed by this Bill.
The higher the growth of insurance, the higher the country will earn much needed revenue, but this government seems to have shot itself in the foot by introducing this Bill.
Washington Ndegea is Chairman, Bima Intermediaries Association of Kenya