Number of licensed insurance brokers falls by a third on tough new rules
What you need to know:
- The sharp fall came as underwriters were last year required by law to pay 10 per cent levy on their brokerage commission.
- The levy is to be charged on commissions that brokers bill insured parties.
- The levy arose from amendments to the Finance Act, which affected brokers, insurers, re-insurers and assessors.
The number of licensed insurance brokers in the country fell by nearly a third to 139 last year from 198 in 2014 as tough new rules took a toll, latest industry numbers show.
According to the 2015 insurance industry annual report by the Association of Kenya Insurers (AKI) released Wednesday, the numbers are even much lower than the 187 brokers recorded in 2013. There were 170 brokers in 2012 and 168 in 2011.
The sharp fall came as underwriters were last year required by law to pay a 10 per cent levy on their brokerage commission, which they termed as oppressive and unconstitutional in a court petition. The levy is to be charged on commissions that brokers bill insured parties.
The AKI said the rules outlining higher capital requirements and governing the conduct of the brokers licensed by the Insurance Regulatory Authority (IRA) may have driven some out of business or forced them to merge to cope.
The registration rules for insurance brokers also require, for instance, a bank guarantee of Sh3 million from a commercial bank or two-year government bond held by the IRA. A minimum paid-up share capital of Sh1 million is also mandatory.
The levy arose from amendments to the Finance Act, which affected brokers, insurers, re-insurers and assessors.
The court ruled against brokers on the levy last September, saying Parliament was within its powers to introduce the tax. It ruled courts had no legal authority to intervene.
The report shows insurance firms operating locally expanded 10 per cent, from 49 insurance firms in 2014 to 51 as at the end of 2015.
“Some 25 companies wrote non-life insurance business, only 14 wrote life insurance business while 12 were composite—both life and non-life,” says the report.
Insurance agents increased in the period to stand at 6,424 compared to 5,155 agents in 2014. Insurance penetration is at 2.79 per cent compared to 2.93 per cent in 2014, remaining below the three per cent mark despite the sector growing by 10.5 per cent in 2015.
The gross written premium increased to Sh173.79 billion in 2015 compared to Sh157.21 billion the previous year.
Speaking during the release of the report, the AKI executive director Tom Gichuhi said fraud remained a major issue in the industry.
He, however, said the industry is betting on the setting up of an IT system to detect and nip in the bud the runaway crime which is threatening to bring down various players.
“Motor and medical insurance that represent 27 per cent and 39 per cent of business respectively totalling to over 60 per cent of Kenya’s insurance sector is prone to fraud. Fraud is our biggest concern, but we hope we can finally address this,” said Mr Gichuhi.
“We have had instances where rogue individuals make multiple claims from different insurers but we shall now detect this early enough with the integrated system at the point of fraudulent claims.”
The AKI deputy chairman Hassan Bashir said the industry is eyeing a bigger pie of the formerly neglected marine cargo insurance business following legal changes, which require all insurance risks to be domiciled in Kenya.
