How rogue insurance agents mislead clients in race for life cover commissions

In 2009, Kenneth Njagi was an optimistic man. He had just signed up for an insurance policy that promised to secure his young daughter’s future. She had just started school.

A friendly insurance agent had approached him and introduced him to a product from his company.

The premiums for the cover, Mr Njagi was told, would be paid monthly over 15 years. After the 15th year, he would be liable to a payment of Sh2.5 million.

Further, should he die before the cover’s maturity, the insurer would give Njagi’s daughter, whom he had listed as the sole beneficiary, a Sh900,000 cheque — the total amount he would pay over 15 years.

The agent told him his premiums would be invested in stocks, money markets and Treasury bills to earn an interest, which is what would enable the Sh2.5 million payout.

Risk aspect

Further sweetening the deal, Njagi heard that should he want to terminate the cover, he could do so at any time, with any administrative deductions covered by interest payments.

To Njagi, it sounded like the perfect investment. He signed up to make monthly payments of Sh5,000. He kept this up for seven years, but was eventually forced to reconsider the cover after facing some personal issues that required quite a bit of money.

He walked to the insurance company and asked to withdraw the cover and get his money back.

That is when things fell apart.

First, he was told he would get back less than half the total premiums he had paid. Of the Sh420,000 he had contributed, he would only receive Sh200,000.

On top of this, he was informed that even if he waited for his cover to mature in 15 years, he would not get Sh2.5 million, but Sh1 million. He walked out dejected.

“After this experience, I wouldn’t recommend a life cover to anyone. The agent made it sound like some sort of wise investment, but I have come to learn that it was all a lie,” Njagi said.

His case is not isolated. Stories of insurance agents misrepresenting facts when selling life covers abound.

This has not only been blamed on rogue agents, but also on the industry regulator and insurance companies for failing to rein in the practice.

Kalai Musee, a manager in the technical department at the Insurance Regulatory Authority (IRA), described a life insurance policy as one that: “generally covers the risk that the life insured may die during the currency of the policy, in which case the sum assured is paid to the beneficiaries”.

It may also cover the risk of disability, where the disability amount is paid to the client.

“Some policies have a maturity benefit paid to the insured if they survive the period of the policy. In this case, the policy has an investment aspect. Some life insurance products are more like investment products, with a little risk aspect,” Mr Musee added.

He admitted that agents can shortchange policy buyers, and recommended that clients read the fine print before signing up.

“A client needs to understand the benefits payable under the product — whether risk or investment. If it is an investment product, the interest will be earned the first month, but if it’s a risk product, such as Njagi’s, a surrender value condition may apply. This means the product may have no cash value for the first three to five years.”

Musee added that with investment products, the interest may or may not be guaranteed, which means clients need to be aware they could lose their money.

Negative perception

Life cover has one of the lowest penetrations in the market. IRA attributes this to its negative perception among Kenyans, which is fuelled by stories like Njagi’s, unsustainable income levels, as well as low levels of awareness about the benefits of life insurance.

A report done this year by Ernst and Young (EY), a consultancy firm, titled Waves of Change: Insurance Opportunities in sub-Saharan Africa points out that if nothing is done to address these issues, life insurance sales have limited potential to grow in Kenya.

The report says that in sub-Saharan Africa, Uganda and Tanzania are at par in terms of sales potential at 88 per cent. Zambia follows at 70 per cent, while trails is at 65 per cent, only ahead of Ghana at 54 per cent.

We asked Musee if insurance companies are doing enough to rein in rogue agents.

“Yes, they are doing well. We have seen them rein in those who have been found guilty of wrongdoing, but there is room to do more.”

Life insurance is important for the social-economic development of any society. It provides financial protection for families against the effects of death or disability, and ensures savings are made that can be used at a later date, including in retirement.

A vibrant life insurance industry can also make significant long-term investments in capital markets, or provide governments with a pool of funds to borrow from for development projects.

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