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Explainer: What follows when an insurance company closes or collapses

The maximum compensation payable to claimants of collapsed insurers by the policyholders compensation fund (PCF) is Sh250,000

Insurance content
  • Insurance provides a safety net in unexpected events for individuals and businesses
  • The Insurance Regulatory Authority oversees the insurance industry in Kenya and sets stringent licensing requirements
  • The Policyholders Compensation Fund in Kenya provides compensation to claimants of an insurer placed under statutory management

Insurance is a vital part of businesses and individual lives, providing a safety net during unexpected events.

But what happens when the insurance company you rely on shuts down? Understanding the implications of your policy and the steps to take can help you navigate this challenging situation.

Insurance is a mechanism that allows individuals and businesses to transfer risk to insurance companies in exchange for a fee known as a premium.

The insurance companies, in turn, promise to compensate for any insured losses should they occur.

In Kenya, the Insurance Regulatory Authority (IRA) oversees the regulation, supervision, and development of the insurance industry.

There are two main types of insurance:

  1. Life Insurance (Long Term): Includes contracts that last more than one year, such as life assurance, annuities, pensions, and investment-linked policies.
  2. General Insurance (Short Term): Covers contracts of one year or less, including motor insurance, fire insurance, personal accident, and medical insurance.

To operate in Kenya, insurance companies and brokers must meet several stringent licensing requirements. These include:

  • A licensing fee of Sh10,000.
  • A bank guarantee of Sh3 million or a government bond under lien.
  • Professional indemnity insurance with a minimum limit of Sh10 million.
  • A minimum paid-up capital of Sh1 million.
  • At least 60% shares held by Kenyan citizens.
  • CV, certificates, testimonials.
  • 5+ years’ insurance experience.
  • Membership certificate.
  • Identity Cards
  • Appointment letter.
  • Fit and proper form.
  • Work permits (if applicable).
  • For new applicants, submit 3-year business plan.

Before a company is declared insolvent, the IRA appoints a statutory manager to try and revive the company.

The statutory manager will take over the company for a specified time period but depending on the circumstances of the work, can apply for an extension with the Authority.

When an insurance company closes, the immediate concern for policyholders is the status of their policies. Here's what you need to know:

If you hold a life insurance policy and the insurer shuts down, your policy remains valid. You must continue paying premiums to keep the policy active.

Failure to do so can lead to the termination of the policy by the insurance company. Once the policy matures, you retain the right to claim under its terms.

The Policyholders Compensation Fund (PCF) is a state corporation established to provide compensation to claimants of an insurer placed under statutory management. This fund aims to boost public confidence in the insurance sector.

The PCF covers claims from all insurance policies issued in Kenya, with the following exceptions:

  • Re-insurance policies (Insurance for insurers; transferring risk to another insurer)
  • Superannuation schemes (Retirement savings plans, often sponsored by employers)
  • Claims from policies issued before the fund commenced operations in 2005

The Board of Trustees of the PCF, in consultation with the minister, determines the compensation rates for different insurance policies.

Policyholders eligible for compensation must submit a claim form along with necessary supporting documents to the managing trustee.

The maximum compensation payable to claimants of collapsed insurers is Sh250,000.

In submitting a claim, policyholders must:

  • Ensure full and honest disclosure of all relevant facts.
  • Provide any additional information required by the Board.

The goal is to process and pay compensation to the policyholder or their beneficiaries as soon as reasonably practicable after a claim is made.

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