Insurance firms push for higher compensation for policy holders

Stakeholders in the insurance sector are advocating for increased compensation for policyholders in the event that an insurance company collapses. Currently, compensation is capped at Sh250,000, a figure many industry players argue is too low, particularly for claimants whose policies are worth millions of shillings.

The Policyholders Compensation Fund (PCF), the body mandated under the National Treasury to facilitate such payouts, has termed the current compensation limit as inadequate.

Speaking during the fund’s 20th anniversary celebrations and the inaugural Africa Insurance Resolution Conference, PCF Board Chairperson Simon Mbugua said the fund is seeking public input on how to revise the compensation limit upwards.

“When an insurance company collapsed in the past, there was no safety net. But now PCF is here to provide that cushion. We’re currently reviewing the figures with the intention to increase the payout as contributions to the fund grow,” said Mbugua.”

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Insurance Regulatory Authority (IRA) chief executive Godfrey Kiptum echoed these sentiments, noting that the current Sh250,000 cap does not reflect the scale of most insurance policies. “While it’s a starting point, we recognise that many assured sums are in the millions. The current compensation level presents a significant challenge for the affected policyholders,” he said.

Kiptum confirmed that reviewing this limit is a top priority for the fund. The sector is now calling on Kenyans to submit proposals as part of the ongoing development of the new PCF Bill to formalise these changes in law.

If the proposals are adopted, insurance firms could be required to contribute more than the current 0.5 per cent of premiums to the fund.

This move aims to strengthen the financial safety net for policyholders and guarantee compensation in cases where insurers go under, leading to license cancellations.

The review aims to make the compensation framework more responsive and sustainable in light of evolving policyholder needs. Kiptum said the guarantee scheme has played a major role in cushioning policyholders after failures of the insurance companies.

He noted that the compensation period has been reduced from years to between 90 and 120 days. In tandem with the planned compensation reforms to improve efficiency, Mbugua said the fund is also investing in a new integrated digital platform designed to revolutionise how the fund operates.

“The digital platform will automate claims processing, enable real-time monitoring of insurer risk indicators, and enhance transparency in our operations,” said Mbugua, adding that the changes are expected to speed up compensation and resolution processes.

The chair noted that the fund, which boasts an asset base of Sh25.7 billion since its inception in 2005, emerged as a stabilising force to cushion policyholders and restore confidence in the insurance sector. “When PCF was established in 2005, we were bridging a critical gap. Before then, the failure of an insurer meant financial ruin for policyholders—no redress, no relief, and no recovery,” he stated.

“Insurance sector is not merely a financial subsector—it is a safeguard for livelihoods, a facilitator of enterprise, and a vital pillar in our economic architecture, contributing 2.4 per cent to Kenya’s,” he added.

Mbugua also announced that the fund is fast-tracking the development of a comprehensive PCF Bill aimed at overhauling the current legal and regulatory framework.

Once enacted, the Bill will broaden the fund’s powers in resolution planning and policyholder compensation, while aligning PCF’s operations with international best practices.

Kenya’s leadership in hosting Africa’s first insurance resolution conference and in co-founding the International Forum of Insurance Guarantee Schemes (IFIGS) was celebrated as a testament to PCF’s global relevance.

“As a pioneering African member of the IFIGS, we have positioned Kenya at the forefront of the continent’s insurance resolution conversation,” said PCF Chief Executive Director and Managing Trustee Mohamed Sahal.

Sahal called for the elevation of our compensation limit to reflect inflation and evolving risk profiles.

Askar Utkelbayev, a representative of the Chairperson of the International Forum of Insurance Guarantee Schemes, said the inaugural conference will help in the exchange of experience of the best practices in resolving insurance obligations across various jurisdictions, in contribution to building a reliable, sustainable and trustworthy insurance system worldwide.