How to fortify insurers against inherent faults
A lot concern has been raised about the rate of collapse of insurance companies despite the many measures taken to check the same.
The Insurance Act, Section 32, sets the Minimum Capital Requirements for general insurance business at Sh600 million or more. Long term insurance business is capped at Sh400 million, or more.
The same Section 32 stipulates the risk-based capital requirements (based on the amount of business held) for the two categories, and which are to be determined from time to time.
These requirements aim at ensuring financial strength is maintained and that companies can take care of their obligations.
Section 54, in the Third Schedule of the Insurance Act Cap 487, states that insurance companies should file quarterly reports to the regulator, the Insurance Regulatory Authority (IRA), currently led by commissioner Sammy Makove. This is as set out in Part C to facilitate regular monitoring of their dealings.
So why do insurance companies go under? Over the past 30 years, more than nine firms have closed shop. Since the establishment of IRA in 2006, three companies have gone under.
One of the main reasons is that the regulator is not doing due diligence on the operations of these companies.
Firms have been known to spruce up their quarterly reports to show favourable positions. Proper examination by the regulator should bring out these anomalies.
There are also companies that do not file quarterly reports, with some seeking more time to comply. These are the companies that the regulator should focus on before they are declared insolvent.
Other pitfalls in insurance industry include unsuitable employees. The sector has many recycled employees from one company to another, making a mockery of their human resource departments. Employee turnover rate is also very high.
Non-performers and crooks are recycled owing to their longevity and experience over the years, but these are not measures of honesty and industriousness. Some survive the axe due to office politics, with a number rising to powerful positions. They keep making the same old decisions and, at times, invite their colleagues over for highly-paying jobs.
A cursory look at all the collapsed companies shows an eerie similarity to these shortfalls.
Moving forward, human resource departments of insurance companies should wake up and vet afresh all employees.
The regulator should pay more attention to quarterly reports. Late presentation should trigger thorough scrutiny. Merely putting rogue insurance firms under receivership is not enough, and besmirches the industry.
Washington Ndegea, Bima Intermediaries Association of Kenya
IRA head Sammy Makove