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July 21, 2018

Insurance fraudsters to pay 10 times of swindled amount

President Uhuru Kenyatta-Signing the Banking (Ammendment) Bill, 2015 at State House, Nairobi
President Uhuru Kenyatta-Signing the Banking (Ammendment) Bill, 2015 at State House, Nairobi

Persons charged for committing an insurance fraud would pay hefty penalties of ten times the amount swindled if MPs pass a government-sponsored Bill to fight the vice.

National Treasury through an Insurance (Amendment) Bill, 2018 tabled in Parliament would also see insurance fraudsters jailed for a period not exceeding five years.

The Bill sponsored by National Assembly's Finance committee chairman Joseph Limo on behalf of Treasury states that one is guilty of an insurance fraud after engaging in the vice “knowingly, by an act or omission” to injure, defraud or deceive.

The proposed law amending the Insurance Act, Cap 487 of 2012 is part of a raft of legislative proposals Treasury Cabinet Secretary Henry Rotich pledged when reading the 2018-19 budget estimates in Parliament early last month.

“The Bill seeks to amend the Act by introducing a legal provision creating offences on insurance fraud, including penalties intended to address the problem of insurance fraud that continues to be a major challenge to the stability of the insurance industry in the country,” part of the Bill reads.

It adds that the amendments will see the Act comply with International Association of Insurance Supervisors standards on countering insurance fraud.

Rotich told the House that lack of adequate laws to govern the insurance sector have seen increased cases of fraud in the country.

“I propose to amend the Insurance Act to introduce provisions to criminalize insurance fraud and protect the consumers,” he said.

KPMG, a global London-based audit firm, three years ago said insurance premiums in Kenya could be 20 per cent lower if fraud was curbed.

The draft Bill states that the fraud is committed when a perpetrator including an insurance official prepares, assists, abets, solicits or conspires with another to make any false oral or written statement to defraud an insurer through compensation.

“Any person who knowingly or willfully, hinders, prevents or obstructs investigations under this section shall be guilty of an offence,” part of Section 204B of the proposed law, reads.

Lost money, property and assets would also be recovered from the culprit through a civil suit.

An insurance beneficiary would be required to swear an affidavit regarding the lost or destroyed original special insurance policy exceeding Sh100,000 before being issued with another policy.

The old existing Act does not require a policyholder to swear an affidavit for compensation from the loss.

The new Bill prohibits an insurance company from assuming a risk in Kenya unless and until the premium payable is received and the insurer will be required to pay an intermediary firm the insurance commission within 30 days after receiving the premium.

“An insurer who contravenes shall be liable to a penalty of five million shillings on each contravention, payable to the Policyholders Compensation Fund,” reads the Bill.

The proposed law bars an insurer's intermediary from receiving any premiums on behalf of the insurance company.

The intermediary violating the provision risks Sh1 million penalty to be paid to the Policy Holders Compensation fund. The intermediary's officers risk a fine not exceeding Sh100,000 or jailed for three months or both.

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