An insurance claim is a formal request by a policyholder to an insurance company for coverage or compensation for a covered loss or policy event. The insurance company validates or denies the claim. If it is approved, the insurance company will issue payment to the insured or an approved interested party on behalf of the insured. That’s the definition according to Investopedia.
According to the Insurance Act Cap 487 of the Laws of Kenya, Section 203 talks about settlement of claims. Subsection (1) talks about the process of claims payment once it is established that the claim is payable and also the time limit within which it should be settled. Section 203 Subsection (1)(d) says that a claim is payable within ninety days of the date of the reporting of the claim or where the determination of liability is by a court, within ninety days of such determination, provided that if, for any reason, the insurer is unable to pay the claim within the period specified in this subsection, the insurer shall apply to the Commissioner for extension of time, and the Commissioner may grant such extension for a period not exceeding thirty days.
Section 203 Subsection (5) says that if an insurer fails to pay the amount of a claim and any penalty thereon due in accordance with this section, the insurer shall be deemed to be unable to pay his debts under section 123 and is liable to be wound up in accordance with that section.
Subsection (5) basically sums up the ninety five percent of the insurance companies in Kenya. It would not be amiss here to mention one of them—notorious for non-payment of claims—Trident Insurance Company. Why it is still in the industry and has not been wound up is anyone’s guess. To quote a case, this company accepted liability of a motor private case to pay the claim and proceeded to issue ten postdated cheques from the fourth month of accepting liability. That means it has already broken the law according to the Insurance Act Section 203 Subsection (1)(d). Nowhere in the Insurance Act does it state a company can provide postdated cheques to settle a claim, but this company continues to issue the cheques which later bounce, and the vicious cycle of following up on the claim payment from the claimant starts all over again. Subsection (5) says that a company guilty of such behaviour should be wound up. That it is still operational means that someone is sleeping on the job.
Companies in Kenya not paying their dues extends also to non-payment to service providers like garages and hospitals. The same company, Trident, owes garages in Kenya over twenty million shillings in unpaid bills for repair of vehicles. This has resulted in some garages shutting down their operations and the resultant loss of jobs. The wider effect is that the insurance industry in Kenya has become the most untrusted entity in this nation and talking of penetration of insurance without closing some of these companies is just talking sop.
Fair compensation of our clients in the insurance industry is a must and issuing postdated cheques to settle a claim is laughable to say the least. The principle of indemnity in insurance asserts that on the happening of a loss the insured shall be put back into the same financial position as he used to occupy immediately before the loss. In other words, the insured shall get neither more nor less than the actual amount of loss sustained. Giving postdated cheques to compensate the insured is putting him in a worse position than he was before the claim, as even the amounts so paid out do not take cognizance of inflation for the one year period the cheques will be banked. A question also arises, since the company is known for issuing bouncing cheques, will the insured ever get value for the insurance cover that they took?
Integrity demands that fair compensation to a client should be immediate as suffering any kind of an insured loss is traumatizing. Any investigation that has to be done should be done speedily within a reasonable timeline, and not what we experience where the company will prolong an investigation for three months or more. Compensation should be done in one current cheque and in the whole amount of the insured asset. Speedy settlement should be done to restore the insurance sector to its former glory. The regulator should clamp down on these rogue companies and their umbrella body, Association of Kenya Insurers (AKI), should also clamp down on their rogue members. AKI should make sure that all their members toe the line and make their organisation a reputable one.
Washington Ndegea is Chairman, Bima Intermediaries Association of Kenya (BIAK)