Consumer protection diagnostic study - FSD Kenya

22 • CONSUMER PROTECTION DIAGNOSTIC STUDY: KENYA
Chapter 8
InSURanCe
The diagnostic did not examine the overall insurance sector in detail, given the
relatively low use of private sector insurance by mass-market consumers. The
following section provides a basic overview of the sector, but does not reflect
a detailed examination of industry data, regulation, or the recourse role of the
regulator. The review was sufficient, however, to identify issues that warrant
more in-depth research at a future date and to identify consumer protection
measures in this sector that could have broader relevance for other sectors.
8.1 SECTOR OVERVIEW
According to the Insurance Regulatory Authority (IRA), there are 44 insurance
companies, 4 re-insurers, over 250 licensed brokers and about three thousand
registered insurance agents (which can be individual firms or appointed
agents). The IRA reports fewer than 450,000 life insurance policies in effect
at the end of 2009. The IRA does not publish indicators on other policies.
But estimates based on IRA staff opinions and FinAccess 2009 extrapolations
suggest that the total of all other private insurance policies is less than one
million. In the FinAccess 2009 survey, the highest usage of insurance products
was with the government-run National Hospital Insurance Fund (NHIF) and
the National Social Security Fund (NSSF), which are serving 4.2% (777,000)
and 2.9% (536,000) of consumers, respectively. However, both the NHIF
and NSSF are government-run programs and currently are not subject to the
jurisdiction, respectively, of the IRA or RBA.
The industry has a clear self-interest in improving its practices, and industry
players freely acknowledge that the mistrust of Kenyan consumers poses a
fundamental constraint on expansion of insurance in Kenya. According to the
Association of Kenya Insurers (AKI), the poor reputation is caused mainly by
agent misrepresentation of insurance products, hidden charges and nonpayment
of claims.
8.2 LEGAL, REGULATORY AND SUPERVISION FRAMEWORK
The insurance industry is governed by the Insurance (Amendment) Act of
2006 Cap 487. The Act established the IRA as well as detailed guidelines that
are typically set out in separate prudential guidelines. The IRA indicated that it
issues additional regulations, but these were not available to the team during
the diagnostic exercise.
The Act empowers the IRA to formulate and enforce standards, license
providers and “protect the interests of insurance policy holders and insurance
beneficiaries in any insurance contract.” 45 IRA inspects insurance companies
as part of the supervision regime and reports that examiners review the
complaints register during on-site examinations. In its Annual Reports
(available through 2006) the IRA reports on the number of complaints in the
aggregate for the insurance industry.
45 [Sect. 3A, (d)].
The Act also established the Policy Holders Compensation Fund (PHCF) to
compensate individual policyholders upon the insolvency of an insurer up to
the statutory compensation limit on any one claim of Kshs .100,000. It only
covers claims arising from the inception of the Fund from 1 January 2005. The
Retirement Benefits Authority (RBA) manages the PHCF as Managing Trustee.
Insured policyholders and insurers contribute 0.25% of monthly premiums to
the Fund.
The Act also established the Policy Holders Compensation Fund (PHCF) to
compensate individual policyholders upon the insolvency of an insurer up to
the statutory compensation limit on any one claim of Kshs .100,000. It only
covers claims arising from the inception of the Fund from 1 January 2005. The
Retirement Benefits Authority (RBA) manages the PHCF as Managing Trustee.
Insured policyholders and insurers contribute 0.25% of monthly premiums to
the Fund.
8.3 GAP ANALYSIS
8.3.1 Transparency
Kenya example:
The IRA consumer protection mandate
The Insurance Act defines a detailed consumer protection mandate for
the IRA. The Act contains specific guidelines related to transparency,
pricing, prohibited practices and consumer rights, and establishes a
recourse role for the IRA.
A broad range of industry participants seem to agree that public mistrust
of insurance products is widespread and related in various ways to
misunderstandings between consumers and insurance companies. Allegations
of agents “misselling products” (this includes selling someone a product that
is not appropriate for their circumstances as well as misrepresenting what is
in the policy) or insurance companies “refusing” to settle claims are frequent
enough to justify closer examination of why consumers are purchasing
insurance products with expectations that are not met over the life of the
policy. The question of whether policies and contracts are presented in clear,
plain English language appropriate for the Kenyan population merits further
investigation. The level of popular mistrust suggests that a uniform disclosure
form for pricing and policy conditions, especially conditions related to claims
settlement, is indicated for each key type of policy.
The multi-tiered structure of the industry presents various challenges for
consumers. Consumers can easily form erroneous expectations, or be misled
willfully or by negligence, in an industry where over 3,000 intermediaries
stand between the consumers and the insurers.
The Insurance Act does address basic issues of transparency. Part XVII
(Advertisement and Statements) prohibits deceptive or dishonest statements in