About eight insurance companies have either collapsed or have been put under statutory management by the regulator thanks to fraudsters. They include the Kenya National Assurance Company, Lakestar Insurance Company, Liberty, Access, Blue Shield, and United Insurance
This meant that Sh84 was paid as claim for every Sh100 received as premium – way above the industry breakdown that allocates 50 per cent to claims – 30 to management and 10 each to agents and shareholders, according to officials at AKI.
Experts say an unstable insurance industry has put thousands of policyholders at risk of losing their savings while many accident victims could be forced to wait for years before getting justice in local courts.
The impact of collapsing firms is already being felt with several compensation cases stuck in courts after underwriters folded up, leaving Public Service Vehicle owners at the mercy of third party policyholders.
Third party policy
Motorists whose insurers have collapsed have had their property auctioned to compensate third party policyholders while others have cases pending in courts.
Medical and motor insurance business segments – the mainstay of the industry, are said to be making loses as a result of increasing fraud. According to AKI’s annual report for 2010, the health insurance segment made the highest loss ratio of 81.5 per cent followed by motor private insurance at 74.9 per cent.
Statistics from the Ministry of Transport and the Traffic Police department show there were currently about 50,000 PSVs on the Kenyan roads.
A 14-seater matatu, for example pays insurance premium ranging from Sh7,800 per month or Sh75,000. The motorcyclists, commonly known as boda boda pays Sh9,100 per year for comprehensive cover.
The Kenya Insurance Regulatory Authority (IRA) Chief Executive Officer Sammy Makove says PSVs paid a total of Sh3.2 Billion in premiums in 2011.
Makove, who is also the Commissioner of Insurance, says that in 2011, total claims made against the insurance firms from accident cases totalled Sh1.5 billion. Out of this, only Sh728m has so far been paid.
But fraudsters could have pocketed almost 40 per cent of this amount already paid out, he noted.
“It is true. In the PSVs, 40 per cent of the claims lodged are fraudulent. Fraud is a serious industry. We have lawyers doing nothing but just cook insurance claims. They manufacture accidents, fake deaths or injuries and even forge police abstracts,” says Mr Makove.