Structured settlements

The Association of Kenya Insurers has urged the Minister for Finance to consider changing the law to allow for more time to pay claimants under the third party cover


The Association of Kenya Insurers has appealed to Finance minister Uhuru Kenyatta to change the law that requires insurance companies to pay claimants within 90 days of reporting a claim.

The association’s point of disagreement is not the 90 days but the fact they have to honour a claim from a person, who might not necessarily be their insured.

Currently, it is possible for someone with a third party motor vehicle insurance cover - in case of a minor accident - to claim compensation from the other party’s insurer.

“This is a claimant making a claim and not the insured making it difficult for the insurance to get all documentation within the required 90 days,” said AKI executive director Tom Gichuhi.

“If he presents me with an assessment report, a police abstract and an invoice from the garage, that is the claimant I am supposed to pay even without checking the authenticity of the documents.”

To fight fraud and ensure timely settlement of claims, Mr Gichuhi said, insurers want the minister to replace the word “claimant” with the “insured or his legal representative.”

Section 23 of the Insurance Act says that where a claimant has submitted all relevant documents, every insurer shall in respect of a claim arising from a policy issued by it, admit or deny liability, determine the amounts due, the identity of the claimant and pay the claim within 90 days of the date of the reporting of the claim.

“We wish to propose that this ought to refer to the insured in respect of general insurance business and to a claimant in respect of life insurance business,” the association says in its 2009/10 Budget proposal.

Mr Gichuhi said the special case for life is the possibility that the insured might not be alive.

Insurers would like the clause to be reworded such that where a claimant, in respect of life insurance business or an insured in respect of general insurance business has submitted all relevant documents, every insurer shall in respect of a claim arising from a policy issued by it, admit or deny liability.

Where liability is admitted, the insurer will determine the amounts due, the identity of the claimant and pay the claim within 90 days of the date of the reporting of the claim.

Claim settlement has in the past been an issue of concern leading to stern warning by former Finance minister Amos Kimunya in his 2008/2009 Budget last year.

He said that some insurance companies take too long to pay or in some cases don’t honour claims submitted by the insured person even when the court has ruled in favour of the insured.

To take action on such companies, the minister empowered the Commissioner of Insurance to levy a penalty of five per cent of the amount awarded by the court if the claim is not paid after 90 days.

“To further deter the habit of failure to honour such claims, I propose to give more powers to the commissioner to initiate the process of winding up of such an insurance company in the event that the company fails to pay both the awarded amount and the penalty within the stipulated period,” said the minister.

Specify amount

For the umpteenth time, the association has asked the Finance minister to introduce structured compensation in motor vehicle third party insurance.

Structured compensation would specify the maximum amount an insurer can pay depending on the degree of injury.

The association commended the government’s for introducing a cap on liability for third party injury claims at Sh3 million per person per claim under Section 5 (iv).

There, however, still exists a disparity in the manner in which an injury or death claim is settled under Cap 405, it said.

To address this problem, the association proposes that a mechanism for structured payments be introduced under the Act similar to that prescribed under the recently enacted Work Injury Benefits Act, 2007 which shall not exceed the maximum prescribed under Section 5(iv).

“We further propose that no other proceedings should be filed after a claim is settled in accordance with the requirements of the structured payments under Cap 405,” it said.

The association has requested the minister to recognise by law AKI, Association of Insurance Brokers of Kenya (AIBK) and Insurance Institute of Kenya so that they can enforce their codes of conduct.

With the recent establishment of the Insurance Regulatory Authority, the association says that its legal recognition and that of AIBK, which players have been pursuing for many years, should now be accorded priority.

“This recognition will provide a means of strengthening governance of the industry through these bodies,” Mr Gichuhi said.

“Such recognition should be granted under the Insurance Act, as is the case in both Tanzania and Uganda.”

The recognition is expected to help create a legally acknowledged platform from which the industry would be able to engage the insurance regulator in continuous consultation and dialogue on matters concerning the orderly conduct of insurance business and sustainable growth of the industry.

It would further require every licensed insurer to subscribe to and conform to AKI’s code of conduct.

In addition, an insurer who refuses, neglects or fails to join the association or fails to conduct their business in accordance with sound insurance principles, practices and ethics prescribed by each respective association, may be suspended by the authority from transacting insurance business.

AKI also proposes the introduction of a requirement that every licensed broker should be a member of the Association of Insurance Brokers of Kenya and should subscribe to and conform to the association’s code of conduct.

Suspend broker

The authority may suspend a broker who fails to join the association or defaults in his or her obligation or fails to conduct their business in accordance with sound insurance principles, practices and ethics prescribed by each respective association.

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