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Insurance companies blocked from raising vehicle premiums

By Kamau Muthoni - January 12th 2022

A damaged vehicle requiring repair. [Courtesy]

The High Court in Nairobi on Wednesday, January 12 temporarily blocked insurance companies’ bid to raise premium charges.

Motorists have also been granted the liberty to seek comprehensive cover for vehicles that are at least 12 years old.

Justice James Makau said the orders will remain in place until a petition filed by the Human Rights Commission is heard and determined.

On January 6, the human rights lobby moved to court to challenge the recent increase in motor vehicle insurance premiums.

The commission sued the Insurance Regulatory Authority (IRA), accusing it of acting illegally in sanctioning the hiking of premiums and locking out those with vehicles that are 12 years or older from comprehensive cover.

The suit came days after insurance firms notified their customers and business partners of higher insurance rates beginning January 1.

Insurers expect the higher premiums to cushion them against losses in the motor insurance segment that has perennially been a loss-making venture.

The insurers have set a minimum premium that vehicle owners can pay annually.

One of the insurers has set Sh45,000 as the minimum premium for vehicles valued under Sh1 million unlike before when the premium was calculated as a percentage of the value of the vehicle.

Other firms have said they will only issue comprehensive cover to vehicles whose value is more than Sh600,000 and not older than 12 years.

Ordinarily, premiums for the comprehensive cover are tabulated using a definite formula of four per cent of the value of the motor vehicle.

Any amount above this has to be justified and has to involve consumers.

But the KHRC argues that the new move is discriminatory, punitive and goes against consumer rights to access services at a reasonable cost.

“Considering the mandatory nature of motor vehicle insurance, then the said service has to be offered in a manner that protects consumers’ health, safety and economic interests,” says KHRC lawyer Kelly Malenya in court papers.

“To unjustifiably increase premiums without consultations and justification violates the rights of consumers. To further exclude a specific category of vehicles from comprehensive insurance cover without justification equally violates the rights of consumers.”

KHRC has also roped in the insurance firms’ lobby, Association of Kenya Insurers, as an interested party in the suit.

It argues that IRA has failed to tame its members and instead allowed them to thrive while trampling on motorists.

“The respondent (IRA), being the regulator and supervisor of insurance business in Kenya, has violated its fiduciary duty it owes to policyholders and the public in general for permitting or condoning insurance companies to unjustifiably increase premiums up to 50 per cent with no public participation,” says Malenya.

According to the human rights body, insurance firms are to blame for failing to stem fraudulent claims. It asserts that the financial burden cannot be passed on to the consumer and without public participation.

“Most of the insurance companies have attributed the increase of premiums to a surge of claims, some of which are fraudulent. This is not a reason to increase the premiums considering that the law provides safeguards, which allows insurance companies to repudiate claims that are not genuine,” argues KHRC.

The lobby wanted the court to suspend the new charges and direct insurers to continue issuing comprehensive covers to all motorists.

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