Uganda, Kenya change laws to pry insurance brokers out of value chain

Insurance brokers and agents in Uganda and Kenya are facing an uncertain future, in the wake of law amendments to bar them from handling premiums.

Some rogue industry intermediaries use premiums to conduct other businesses, leading to late remittances to insurance companies — leading some underwriters refusing to pay claims.

Now the two countries have moved to ensure direct payments of premiums to the insurers.

This is expected to make the going tough for brokers and agents, coming at a time when their earnings, particularly in Kenya, are the decline due to depressed growth of the insurance market and rising cases of policy surrenders as a result of hard economic times.

In Uganda, the government has amended the Insurance Act, forbidding insurance brokers and agents from accepting cheques or other payable orders from policy holders or prospective policy holders.

The law, which takes effect on January 1, is expected to have a direct impact on the operations of brokers, whose income commissions increased by 20.8 per cent in 2017 to $10.7 million, up from $8.8 million in 2016, according to data from the Insurance Regulatory Authority of Uganda (IRAU).

In Kenya, the National Treasury is pushing for an amendment of the Insurance Act to make it a criminal offence for brokers and agents to handle premiums.

The Insurance Amendment Bill is being debated in the National Assembly.

The drastic decision by Uganda and Kenya comes at a time when the region is trying to harmonise the insurance industry with the drafting of the East African Community Insurance Act, 2018, which seeks to provide an integrated, sound legal and regulatory regime that conforms to best international practices.

The push to block brokers and agents from handling premiums has caused anxiety among intermediaries, who face loss of business.

“These new laws will deprive brokers of a huge chunk of business and many brokerage firms will be forced to lay off employees,” said Nelson Omolo, chairman of the Association of Insurance Brokers of Kenya (AIBK).

In Kenya, data from the Insurance Regulatory Authority shows that in 2017, 39.3 per cent of the total industry premium was sourced through insurance agents; 33.5 per cent through insurance brokers; and 27.2 per cent was received directly by insurance companies. This means that brokers and agents handle about 72 per cent of the premiums.

Going by the fact that, in 2017, the gross written insurance premiums stood at $2 billion, meaning a staggering $1.4 billion passed through the hands of brokers and agents.

In Uganda, a market with 35 insurance brokers, the gross written premiums in 2017 stood at $194.3 million, a 14 per cent increase from $169.4 million in 2016.

Under the new law, Uganda has made it clear that no insurance cover will be provided on credit and that all insured clients, both corporates and individuals, must pay their premiums upfront and in full to the underwriter before the effective date of the policy.

“All premiums shall be paid directly to the insurance companies or health membership organisation and not to an insurance broker or insurance agent as the case has been,” said Alhaj Kaddunabbi Ibrahim Lubega, IRAU chief executive.

In Kenya, sections of the proposed law stipulate that “an intermediary shall not receive any premiums on behalf of an insurer” and that an intermediary who contravenes the law will be liable to a penalty of $10,000 on each contravention, payable to the Policy Holders Compensation Fund.

“We are opposed to these plans of criminalising the aspect of brokers handling premiums because intermediaries are important in the insurance value chain,” said Mr Omolo.

He added that AIBK has made a submission to parliament to make changes to the Bill to allow brokers to receive premiums, but remit to the insurer all the premiums payments within a certain period.

By The Eastafrican

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