State to issue standard contract templates for insurance, retail deals
CAK director-general Wang’ombe Kariuki.
Insurance companies and suppliers of goods and services must use a standard contract issued by the government, in a new initiative meant to curb fraud.
The Competition Authority of Kenya (CAK) on Tuesday published contract templates to be used by firms providing insurance and supplying goods and services, saying they will help minimise cases of buyer power abuse.
This comes two weeks after CAK, in its 2019/20 annual report, cited the insurance and retail sectors as the most notorious in high cases of abuse of buyer power.
Some 38 per cent of cases related to abuse of buyer power investigated over the period were from the Insurance sector, CAK says, while 28 per cent and 14 per cent were reported from retail and government procurement, respectively.
“In order to cultivate a culture of contracting parties adopting written commercial agreements and facilitate compliance with the Competition Act, the Authority has developed model contracts for use by buyers and suppliers in the retail and insurance sectors,” the authority said yesterday.
“The Authority expects that the template contracts, if applied, will minimise conflicts between contracting parties in the retail and insurance industry, and which have invited the Authority’s intervention.”
The templates detail the minimum requirements that contracts must contain before a supplier and buyer get into business, with CAK saying they will serve as reference point for parties.
With a 2.43 per cent market penetration as of 2019, down from a high of 3.44 per cent in 2013, the insurance sector is now among the least trusted in the country, amid many cases of clients being fleeced.
The authority, in its annual report, noted that the most common problem facing the insurance sector, at 66 per cent, was delaying payments to clients, while 15 per cent of complaints were related to unilateral termination of contracts, without notice or on short notice.
“Once the client has booked a service, repair work, or assessment with the supplier, this will act as binding between both parties. (Bookings can be through a written letter, telephone call, SMS, email or physical meeting). Orders taken via the telephone or internet will be treated as binding,” one template CAK published states.
“Delays in payment of a supplier without justifiable reason in breach of agreed terms of payment, unilateral termination or threats of termination of the commercial relationship without notice or on an unreasonably short notice period, and without an objectively justifiable reason and transfer of commercial risks meant to be borne by the Buyer to the Supplier will be conduct in abuse of buyer power,” reads part of the template for insurance contracts.
The template also warns parties about transferring costs and commercial risks, and demanding preferential terms that end up adversely affecting the supplier.
The authority said it worked with stakeholders in the sectors before developing the models, which are to apply as the sectors’ best standards of practice.
In the annual report, CAK also indicates that it would require the sectors heavily affected by incidents of abuse of buyer power to develop a binding code of practice.
“The developed code shall be published by the Authority in consultation with the relevant stakeholders, relevant Government agencies and the Attorney-General,” the authority stated.
