New law to edge out insurance brokers

With the hiking fare prices, most people prefer using motorbikes for their flexibility. [Kipsang Joseph/Standard]

The insurance industry could soon be thrown into a tailspin if new amendments to the insurance Act sail through the National Assembly.

The proposed changes dubbed Insurance Act (Amendments) 2018, which are being fronted by the Government through the National Treasury, are at the Committee Stage in the House.

If adopted, the amendments would introduce radical changes in how the main industry players relate to each other in terms of handling clients’ money and the payment of commissions.

They also propose drastic measures to curb fraud in the industry. For starters, the principal Insurance Act is being amended by repealing section 156. The new Section 156 (1) proposes a ban of brokers and agents from receiving premiums from clients on behalf of insurance companies.

According to the proposed law, a broker or agent who receives the money from a client stands to be fined Sh1 million.

“No insurer shall assume a risk in Kenya in respect of insurance business unless and until the premium payable thereon is received by the insurer,” the amendments read in part.“A broker or agent, also called intermediaries, shall not receive any premiums on behalf of an insurer. Any intermediary who contravenes this section shall be liable to a penalty of Sh1 million on each contravention, payable to the Policy Holders Compensation Fund.”

Currently, it is common practice for the intermediaries to receive premiums on behalf of the underwriters.

The practice has raised controversy, with some intermediaries delaying relaying of the premiums to insurers for long periods, meaning the clients are unable to access cover in time.

Liable to penalty

Others have been found to disappear with the money altogether. Under the proposed law, insurance companies will be compelled to pay the intermediaries commissions on time after they receive the premiums or risk hefty penalties.

“An insurer shall pay an intermediary insurance commission due within 30 days upon receipt of premium. An insurer who contravenes this section shall be liable to a penalty of Sh5 million,” read the amendments in part.

Section 204b of the proposed law expressly describes what constitutes fraud.