How to for­tify in­sur­ers against in­her­ent faults

Daily Nation (Kenya) - - LETTERS -

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

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