Does the Insurance Regulatory Authority really understand competition law?

Thursday August 28 2014

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Kenya started a brave but halting journey to systematically deregulate and liberalize the economy in the early 1990s, but a number of regulatory institutions established after that, it seems, have not moved with the times

Several people working in public offices and taking decisions that affect Kenyans remain dangerously uninformed about the facts of Kenya’s economy generally, and about adherence to the economic logic of existing laws.

I was alerted by a business professional to this article stating that the Chief Executive of the Insurance Regulatory Authority (IRA) placed three firms on notice for price undercutting in their business dealings.

Those three insurance firms have in response suggested that the regulator is mistaken and offered some reasons why.

Laws aside, it escapes this confident regulator that one cannot speak of markets and private property and then use coercive regulations to compel firms to sell goods or services at a price determined by an administrative authority.  


The ridiculous reason stated for this administrative action is that the regulator is concerned that the firms cited were driving prices of insurance premiums below the agreed prices, thereby creating instability in the industry.

Not only is the economic reasoning wrong, but the legal reasoning is also perverse In short, it should embarrass the insurance industry that an official report issued by its regulator bears such poor economic reasoning while justifying very grave, authoritarian regulatory actions. 

Broad support of a price-setting mechanism within an industry under the guise of managing competition is not an uncommon occurrence in Kenya. Last year, the Law Society of Kenya too had a robust discussion regarding the legality of the requirement for the Chief Justice to amend the remuneration order to set minimum fees.

Clearly, the idea of economic regulation in Kenya is taken to mean that the regulator should dampen the degree of competition in the industry and assure existing practitioners, or insurance agencies and corporations of an income from their clients.


Sadly, many regulators are none the wiser despite this obvious demonstration of regulatory capture.   

That specific directive given by the IRA for the three insurance firms to desist from undercutting is plainly illegal.

What it shows is that the IRA has not made reference to the Competition Act generally and specifically to Section 21 (3) (c) that prohibits fixing prices or setting trading conditions by any institution.

I have no intent to offer legal advice, but the tone of the regulator’s directive to the three insurance firms suggests that the industry has accepted the practice of fixing prices and collusion.

It is an appropriate moment for the Competition Authority of Kenya to give them a call and purge their ignorance on the existence of competition law and remind them that blatant price-fixing has been a crime in Kenya for more than 20 years.


Price-fixing behaviour and other restraints on competition are prevalent in Kenya partly because of the manner of recruitment for the leadership of regulatory institutions. The main officers of regulatory institutions disproportionately come from firms in the industry that are well known to a majority of the players.

In these circumstances, the ability to be fully dispassionate and to enforce regulations in the public interest suffers. This harms consumers because the nascent institution forms a mindset of protecting, not the public, but the firms that hold market share in the industry.

Out of this state of affairs comes the very odd proclamation from the leaders of the regulatory agency that aggressive competition causes instability in the industry, with much less comment on state of consumer affairs.


The Competition Authority of Kenya has to take this chance to defend the fidelity of market competition by reminding the Insurance Regulatory Authority (IRA) that collusion in price-fixing is outlawed and that the directive to private players to stop competing is illegal.

The purpose of regulation is to protect the fidelity of the entire market and not market players.

Because the IRA is not alone in its display of ignorance of the finer principles of economic regulation, the Competition Authority of Kenya is well within its role to specifically educate regulators on the intersection between competition policy and sector regulations.

The whole country would be the better for it because economies that wish to succeed will not do so by constraining economic competition.

Kwame Owino is the chief executive officer of the Institute of Economic Affairs (IEA-Kenya), a public policy think tank based in Nairobi. Twitter: @IEAKwame