33% of registered insurance companies are at risk of getting shut down because they have failed to meet a specified set of requirements. According to the Insurance Regulatory Authority (IRA), 15 out of 45 of the country’s registered insurers have failed to meet some regulatory conditions which include shareholder limits and maintaining the financial stability of their organisation.

Some of these companies have also failed to ensure integrity among their Directors and Executives.

The IRA announced that only 30 out of the registered 45 insurance companies have renewed their licenses. 9 have not even been cleared by the Institute of Certified Public Secretaries of Kenya (ICPSK), a branch of the government tasked with promoting the good governance, administration and management for the sake of competent development within various organisations.

Insurance regulations state that individuals can only own up to 25% of a company’s stake. Anyone with more than 10% is supposed to be monitored by the IRA. The regulator may force these big fish to sell off their stake if they are found to have broken any of the aforementioned protocols.

Insurance law limits individual ownership to a maximum of 25 per cent stake and gives the regulator powers to monitor activities of shareholders controlling more than 10 per cent of the insurers who can now be forced to sell their stake should they be found guilty of fraud and other malpractices.

What does this mean for consumers?

The IRA reports that only 7% of Kenyans have any kind of insurance. This amounts to about 40 million uninsured Kenyans. But what does the possible shut down mean for the remaining 3 million? What would happen to you, as a client, if your insurance company is shut down?

Well, according to Pesatalk sources from CFC Life and Heritage Insurance, this means that consumers will just have to pick up the pieces and move on. Speaking during a recent exchange, sources reported that the shutdown would mean that your policy could be terminated.

Will you lose your investment?

When you put all your eggs in one basket, you risk losing them all in some unforeseen accident. So what happens when your insurer goes belly up? Do you risk losing your investment? Yes and no. While your time with the insurance company may be over CfC and Heritage Insurance sources argue that consumers have nothing to worry about. Instead of losing all your money like you would in an ill-fated pyramid scheme, insurance companies tend to have fail-safe procedures.

[caption id="attachment_28488" align="alignleft" width="294"] Image source: financialjesus.com[/caption]

While losing clients may not bode well for the company, insurers are bound by AKI (Association of Kenya Insurance) regulations which obligate them to pay back their customers in the event of such a crisis.

If your insurer gets shut down, you don’t actually lose your premiums. The company gives you what is known as a “Surrender Value”. This is basically a particular amount of money which is based on the contract you signed before getting an insurance package. The value varies depending on the insurer and the terms of the contract. This value is calculated up until the time when your contract is terminated.

Can your premiums be carried over to another insurance company?

No, they can’t. Heritage sources note that the provisions for each insurance company are different. This means that the terms of a contract from one company cannot be carried over to another organisation. As stated above, you can only receive the Surrender Value and use your accumulated funds to apply for a new and more secure policy.

Will you get all your money back?

If your insurer gets the boot, you will get some if not all of your accumulated earnings. If your term is cut short by the proposed shutdown, your service provider will give you an amount that is based on their policies and the contract you signed upon joining that particular organisation.

No one jokes about the money that they are entitled to. Those that do may be stark raving mad. In which case, insurers make promises that they are contractually obligated to deliver.

Even with a potential shutdown looming over the horizon, your contract will save you from going home empty handed. So you had better read the fine print because the IRA has given offenders up until the 1^st of March, 2013 to comply. Until then, the IRA has  encouraged industry players to be more open about their dealings.