Photo credits: Nairobi Business Monthly
The insurance sector is the latest industry to be impacted by the novel COVID-19 virus. No sector will be spared by the impact of the virus. In the latest developments, insurance firms are facing a deadline for an increase by double figures for their capital buffers by next week. A capital buffer is the mandatory minimum capital that financial institutions and businesses are required to hold in addition to other minimum capital requirements.
With the impact being felt heavily on the sector, the industry faces a risk of reduced premiums and higher claims. Insurance firms have already paid close to Kshs 108 million. Talking to the senate, the Insurance Regulatory Authority chief, Godfrey Kiptum said, “Out of these (general health insurance) claims, Kshs 1.45 million has been paid, Kshs 9.8million is pending and about Kshs 580,000 is unpayable. “
The Association of Kenya Insurers (AKI) said they will release details of the insurance companies that have complied with the increase in the capital buffer directives and those that are yet to comply.
In the requirements set by the Authority,
- Insurers are expected to increase their standard capital from Kshs 300 million to Kshs 600 million or 20% of net earned premiums of the previous year, or whichever is higher.
- Life insurance firms that set aside Kshs 150 million capital are expected to revise this amount upwards to Kshs 400 million or at least 5% of liabilities of the current financial year.
- The total composite underwater capital is expected to be held at up Kshs 1 billion.
Photo credits: Insurance regulatory Authority
Upon the release of the list of the firms that have not yet complied with these new capital buffers, firms that would not have complied will get a 30-day notice the lapse of which their licenses shall be withdrawn. “As of mid-March, we had not even been having a conversation on risk-based capital. Companies have been dealing with urgent matters of survival, trying not to lay off staff, and paying claims even with reduced incomes from premiums,” said the Association of Kenya Insurers Chief Executive Tom Gichuhi.
However, the Chief executive offered some ray of hope for those who would not have complied with valid reasons for not doing so. “I don’t think the regulator is in the business of shutting down businesses, there will be room for negotiations only if they can demonstrate they have made substantial efforts,” he said.
The Insurance sector is a key player in the Kenyan economy with the sector having the highest number of Financial Advisors, earning commissions on long term. With the effects of the pandemic, it will be in the best interest of the economy and Kenyans at large, to have terms negotiated and jobs secured to avoid closure of any Insurance firms.
Author: Felix Mbaka, Finance & Economics
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