MISUNDERSTANDING

Tussle between insurers and agents over new law

In Summary

•The Insurance (Amendment) Act 2019 seeks to criminalise premiums handling by insurance agents and brokers

•Intermediaries believe it is counterproductive in that it will make it impossible to do insurance business

Association of Insurers and Brokers of Kenya chairman Nelson Omolo with Insurance Regulatory Authority acting CEO and Commissioner Godfrey Kiptum
Association of Insurers and Brokers of Kenya chairman Nelson Omolo with Insurance Regulatory Authority acting CEO and Commissioner Godfrey Kiptum
Image: CHARLES MGHENYI

A squabble may be ensuing between insurers and intermediaries over the Insurance (Amendment) Act 2019.

While intermediaries are seeking to reverse the decision to criminalise premiums handling by insurance agents and brokers under the new law, underwriters want the penalty stayed to avoid mismanagement of premiums.

Association of Kenyan Insurers CEO Tom Gichuhi told the Star insurance brokers have been holding on to premiums longer than they should and using this as investment capital and in some instances failing to remit the premiums altogether.

“I believe they are fighting to be allowed to collect premiums on behalf of firms to use as capital investment to gain interest before they remit the cash to firms, which could take up to over a year,” he said.

All this, while firms have been rendered unable to pay claims to policyholders in the case of an accident, he added.

The Insurance Act 2019 was the result of a lobby by underwriters who claim at more than Sh40 billion is yet to be remitted by brokers slowing down the payment of claims.

“We are still collecting data from all insurance firms to determine the exact amount. We will have the exact amount before the end of the month,” Gichuhi said.

On Tuesday Justice John Mativo ordered that the Insurance (Amendment) Act 2018 be stopped until the full hearing date set for September 26.

This means intermediaries can continue with their business of handling premiums and remitting them to insurance firms as was the case before the new law was passed.

On July 5, the Association of Insurance Brokers of Kenya (AIBK) moved to court challenging the law that criminalises premiums handling by insurance agents and brokers.

Through their lawyer Paul Muite, the brokers sued the National Treasury Cabinet Secretary, the Attorney-General and the Insurance Regulatory Authority claiming the new law did not balance the rights of all industry players and was dampening the state’s efforts to grow insurance penetration.

“The implementation of the contentious law will have far-reaching implications that will result in wiping out the business on insurance brokerage in Kenya as well as jeopardise livelihoods,” Muite said.

Gichuhi termed the move to court by intermediaries as the agents and brokers “playing games” and “not being genuine”.

The Insurance law came into effect on July 23 after parliamentarians passed it on July 5.

While the newly enacted law is aimed at ensuring insurance firms have enough capital to settle claims, intermediaries believe it is counterproductive in that it will make it impossible to do insurance business and in turn render thousands of agents and brokers jobless.

AIBK chairman Nelson Omollo said intermediaries had welcomed the move to remit premiums directly to firms, however, in the short period the law had been in effect, there was a lot of confusion, with some of the digital systems required to smoothen the process not yet in place.

“We do not have an issue with the new law but there are a number of kinks that need to be smoothened out before it can be fully effected,” he said.

He added that the insurance agents also wanted to be able to collect premiums without it being a criminal offense.

Gichuhi said if underwriters are penalised for failure to pay commissions within the required 30 days, insurance middlemen should also be subject to the same scrutiny for tampering with premiums. 

"You cannot have a law without a penalty attached," he said.