Insurance company

What to do after your insurance company goes bankrupt

During the first week of April, the country was inundated with reports that one of the major insurance companies had collapsed and been put up for auction. According to Kenbright Actuarial and Financial Services Ltd, the company collected Ksh 3.6 billion in premiums for the year 2021, including Ksh 3.3 billion in health cover and Ksh 0.2 billion in motor insurance.

Following the collapse of the insurance company, policyholders found themselves stranded and many did not know what to do. The Insurance Regularity Authority of Kenya (IRA) – the body charged with the responsibility of governing insurance companies – says the policyholder remains protected when an insurance company collapses or files for bankruptcy.

Insurance experts believe that most companies that have collapsed go bankrupt due to underpricing of their products or higher than expected insurance claims. In Kenya, the first major insurance company to cease operations went bankrupt in 2005. Since then, four other major insurance companies have gone bankrupt.

The recent collapse of a major insurer has exposed the flaws in the sector which has seen thousands of policyholders remain in lockdown, throwing even more uncertainty over the regulation of the sector.

File photo of a motorist checking an insurance sticker on his car.

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In Kenya, the Policyholders’ Compensation Fund plays a central role in complementing regulatory efforts with consumer protection and promoting market stability.

Although central to compensation, the benefits expected from these funds have not been fully realized, leaving most claimants unprotected.

If an insurance company goes bankrupt, the government, through the Insurance Regulatory Authority (IRA), takes control of the business by placing it in receivership.

The authority will try to rehabilitate the company to bring it back to profitability. However, if these efforts fail, the insurance company is declared insolvent, thus causing the sale of its assets.

What to do when your insurance company goes bankrupt

According to the IRA, policyholders must continue to pay their premiums for the remaining portion before their policy expires.

Payment of premiums keeps coverage intact for the remainder of the period.

“If you have a life insurance policy and the insurance company is closed, your policy remains valid and you must continue to pay policy premiums for the remaining term of the policy.

“Non-payment of premiums results in termination of the policy by the insurance company. You have the right to claim under the policy as soon as the policy expires,” the IRA states on its official website.

If an insurer does not have sufficient funds to settle policyholders’ claims, the Insured Compensation Fund (PCF), which takes over the company as statutory manager, uses the funds from the sale of assets to settle claims.

At this point, most policyholders and creditors are dependent on the government capped amount to receive their reimbursements.

Policyholders pay 0.25% of their premiums to the compensation fund and their insurance companies pay a similar percentage.

Policyholders whose insurers collapsed before the creation of the Policyholders’ Compensation Fund must wait for the courts to liquidate the collapsed insurers for their claims to be settled.

In the case of auto insurance policyholders, most policies will be canceled as soon as the policyholder is placed in receivership. This means that the motor vehicle becomes discovered and the owner must obtain other coverage because the use of canceled coverage is illegal.

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File image of NTSA Traffic Police inspecting a PSV matatu

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How to spot insurers likely to fail

Before purchasing any policy or insurance coverage, policyholders are advised to check the history of the company to determine if it is financially sound.

Checking ratings from independent agencies with different rating standards also gives policyholders insight into the financial stability of the business.

Paying close attention to news releases about rating downgrades and the agency’s reasoning for lowering a company’s ratings helps policyholders determine whether the insurer has the ability to withstand market forces and stay current. flow.

Low ratings indicate that the financial stability of the insurance company is in doubt. However, an insured person is advised to continue paying premiums until a new policy is in place.

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