Treasury proposal to amend law could affect brokers operation

Treasury CS Henry Rotich

NAIROBI, KENYA: Insurance brokers are the biggest casualties in the new proposal by Treasury to amend the Insurance Act and do away with their intermediary role.

They act as intermediaries between underwriters and clients.

The brokers, who have lately become victims of a number of disruptive changes in the insurance industry, will be isolated if Treasury’s proposal sees the light of day.

Some of the disruptive changes include new accounting rules that threaten to run them out of business.

“The current provisions of the Insurance Act allow the insured to pay for insurance premiums through intermediaries. The intermediaries delay the payments for the premium, thereby putting the insured at risk,” said Treasury CS Henry Rotich in the budget speech last Thursday.

“In order to ensure prompt payment of premium to the insurer, and taking into account the expanded mode of payment of premiums through digital platforms, I propose to amend the Insurance Act to require the insured to make payments in respect of premiums direct to the insurer. This will enhance prompt coverage of the insured.”

Even before Mr Rotich’s suggestion came to light, the future of brokers in the insurance industry had been in doubt, after many underwriters expressed their desire to cut them out in their interaction with clients.

This came as a result of the mandatory adaptation of new stringent accounting rules dubbed International Financial Reporting Standards (IFRS 17), that require underwriters to consolidate their capital bases and cut costs while strengthening their balance sheets.

The cost-cutting, according to Alex Mbai, a partner at audit firm KPMG, speaking in a previous interview, will come by underwriters doing away with brokers who already earn low commissions. “The belt is tightening on the waist of the entire industry,” said Mbai.

“The tighter things get for insurers, the worse they will get for the brokers. Once these rules come into effect in 2021, insurers will have to change their distribution channels. The traditional insurance broker could be kicked out,” Mbai noted.

Sourcing for services

Brokers have in the past slammed the State for bypassing them while sourcing for the services from underwriters.

Under their lobby, the Association of Insurance Brokers-Kenya, they say they have lost more than 50 per cent of the market share as a result of State agencies, more so parastatals preferring to deal directly with insurance firms.

“... parastatals, which particularly need insurance services, as they seek cover for their properties and employees used to come to us for services. Now they have chosen to contact the underwriters directly,” said AIBK Vice Chairman Nelson Omollo in an interview.