How to stay afloat when your insurer goes under

For many Kenyans, last Wednesday was just another day, even after Standard Assurance was placed under statutory management.

Although many of them use public transport on a daily basis, the collapse of such a major player in the motor vehicle insurance business is no big deal. Yet, their reaction to the decision by the Insurance Regulatory Authority to appoint the statutory manager for the company is not surprising.

To them, this is old news even in the knowledge that no insurer has ever been rescued once placed under such an arrangement.

But then, what do you expect given the low opinion most Kenyans have about the insurance industry? This is not the first insurer to go under and may not be the last one, they say.

But for the troubled insurer’s policyholders, the fact that Kenya National Assurance, Lakestar, United, Invesco, Access and Stallion insurance companies have all collapsed, does not lessen their pain.

“It is like telling a parent whose child has died that it is no big deal just because his or her neighbour has lost two, three or four kids,” Ms Veronicah Wambui, one of the affected policyholders, retorts angrily.

Just like many other policyholders, Ms Wambui has had a rough time in the last one month after auctioneers raided the company’s headquarters, carting away the equipment for non-payment of claims.

A resident of Nakuru, the 56-year-old has been commuting to Nairobi as she tries to confirm the financial status of the company for fear of what could happen to her business.

“I have taken third-party insurance policies for all my three Nissan matatus with the company and with what has happened, I do not know what to do next,” she says as the 12-month moratorium given to the statutory managers, HLB Ashvir Consulting, took effect immediately.

The moratorium is not good news to her since it comes a few weeks into effect after she has just paid six-months insurance premium installments of Sh39,000 for her three matatus.

She is at risk of losing the money because the moratorium shields the IRA appointed managers from honouring any payment obligations to the company’s policyholders and creditors.
Ms Wambui’s predicament reflects one of the many challenges policyholders are grappling with.

Sundeep Raichura, the managing director of Alexander Forbes Financial Services (EA) Ltd, says that when an insurer goes under or is placed under statutory management, it is important for you as a policyholder to immediately place cover with another insurance company. 

“Failure to do so would leave you exposed to the risks for which you took the cover,” says Mr Raichura.

Detrimental

In the event the risks covered by the policy occurs before you act, you would bear all the consequences of having no cover. And this could be very severe and detrimental to you as an individual or as a corporate body.

If you have a similar situation as Ms Wambui, in case of an accident, you would face civil suits in respect to third-party liabilities but this time minus the backing of your insurer in form of a lawyer for your defence and funds to settle any court awards.

“Your assets could end up being attached and even auctioned,” warns Ms Cathy Mputhia, a Nairobi based lawyer.

The head of sales and marketing at CfC Life Insurance Company, Mr Ezekiel Owuor, concurs with Mr Raichura.

“You should immediately stop any bank debit, electronic payment or any other mode of payment you have put in place in respect to the policy,” says Mr Owuor.

He says this is important given that, while for risk-based policies will elapse with time, even paying premiums for investment-based policies with the troubled insurer may not make economic sense.

“Even if the managers were to start making any payments, which is uncertain as of now, when do you think this will be and that they will honour in full the sum assured?”

He adds that, even if they were to honour in full the sum assured, factors like inflation would come into play, thereby eroding the value of your investments.

This is true given that after going under in the 1990s, some of the Kenya National Assurance policyholders were only paid late last year.

“You must lodge a complaint with the statutory managers,” says Mr Piyush Navin Shah of Apollo Insurance Co. Ltd.

This, Mr Shah says, will enable you to know the status of your policy, how it will be affected by the timeline of the managers’ mandate and their plans for the insurer.

The analysts advise that you should collect and have all the documents on your policy in the ready because the statutory managers will require them for verification purposes.

However, that is not the worst for you because, as a policyholder, your options are limited.

While it is advisable to consult the managers, Mr Owuor cautions you against having too much expectations on them.

“You may be unable to individually meet the managers and you may have to wait and see when they can speak to all the policyholders,” he adds.

“You could sue the insurance company, but this could be a tall order and costly particularly for individual policyholders,” says Mr Raichura. 

Protection fund

The new policyholders protection fund established under the Insurance Act is welcome, but the amount of a claim or benefit is limited to only Sh100,000.

Therefore, it is important to carefully select the insurance company with which to cover yourself and your property.

It is unfortunate that more often than not, most Kenyans select their insurer or settle for a policy on the basis of the cost of the cover, in this case, the premium charged.

No wonder, many policyholders have totally inappropriate policies and it is only at the time of claiming that they realize their mistakes.    

As a rule, what is more important to you always is the financial stability and soundness of the insurer, particularly the level of its solvency and reserves.

The size and management of an insurance company, its ability to settle claims, reinsurance covers, as well as the type of cover being selected and the level of cover are very critical.

“You need to carry out due diligence of the insurance company to ascertain its financial stability,” says Mr Owuor of CfC Life.

According to Leo Matundura, the managing director of Lema Insurance Brokers, it is important seek expert advice from a qualified financial intermediary such as a licensed broker.

“Insurance is a unique service that any mistakes made when procuring it could have far-reaching consequences on your life,” says Mr Matundura, a former chairman of the Association of Insurance Brokers of Kenya.

He says the broker will help you analyse your insurance needs, risk mitigation strategies that suits you, the type and level of cover that is appropriate to you and, which insurance companies offers it.   

Insurance advice

Mr Raichura warns that it is unlikely that the insurance company or its agent will be able to give you professional insurance advice or expert cover explanations.

“Their role is largely to supply their own cover product to the public, often designed to ensure there are no adverse effects on their own results,” he says.

As much as possible, watch out for what is often referred to as the small or fine print. This is how you will discover what is actually covered in your policy, what is not covered and what your exclusions are. 

Sadly, too often there are cases of wrong decisions made on the basis of lack, inappropriate or biased advice from the insurance companies agents.

Mr Raichura calls for an amendment to the Insurance Act to provide for a 14-day ‘cooling off period’ for individual policyholders, which he says is common in many jurisdictions.

Under such an amendment, the policyholder, on signing an agreement has two weeks within which to reconsider the cover and whether to take out the policy. 

This will allow a time for reflection on the part of the policyholder and give him or her an opportunity to get advice (if not obtained earlier) or to get time to reverse an impulsive decision or one made at the behest of an overzealous insurance sales person.   

“Evidence suggests a huge number of policy lapses by Kenyans and perhaps, introducing such a cooling off period can help remove or reduce some of these policy terminations,” he says.

It is important to note that, under the cash-and-carry system, you are covered only when the premium is paid.  Therefore, it is important to always confirm if your insurer has received your premiums.

Obtain the policy document and keep it in a safe place where you can easily access it.  Often, the insurance companies and brokers never release the policy document and policyholders are ignorant about their policies. 

“Make a list of all the covers you have and let close family or friends know about them,” says the Alexander Forbes Financial Services MD.

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