Insurers reject new levy

Insurance Company of East Africa (ICEA) CEO John Karionji (C), talks to Ibrahim Kadunabbi Lubega (R) , the Insurance Regulatory Authority CEO and James Ndegwa (L), the chairman board of directors ICEA during the company’s customer appreciation day held recently. Courtesy Photo.  

By Faridah Kulabako

In Summary

Insurers say it would be better if the levy is lower and increased progressively.

 

Players in the insurance industry have demanded for the adoption of a progressive funding model for
the proposed Policy Holders’ Compensation Fund, arguing that starting with a big levy could negatively affect the industry.

Insurers, who were attending an Insurance Regulatory Authority (IRA) consensus building workshop, unanimously said a high levy rate will make insurance policies very expensive for consumers, something that may work against the industry.

IRA, the regulatory body of the insurance sector, had proposed that all insurers and policyholders contribute 0.25 per cent each, of the paid insurance policy premiums to the board that will be instituted and given powers to manage and administer the Fund’s resources.

Players who attended a consultative meeting on the draft legislation on the policyholders’ Fund unanimously advised that it would be better if the levy is lower and increased progressively, saying buyers of insurance products are already paying the training levy and stamp duty, which have slightly increased the charges for insurance policies.

Ms Evelyn Nkalubo Muwemba, the IRA director of legal and compliance promised to revisit the rate but added that players should be mindful that lower contributions might slowdown accumulation of monies in the Fund.

She added that clear regulations will also be put in place to state how the Fund finances should be invested.

Additionally, expense guidelines should be established so that the Fund is not depleted.

The establishment of the Fund, which is provided for in the Insurance Amendment Act 2011, seeks to provide a safety net for policyholders to protect policyholders’ interests by helping in the settlement of clients’ claims in case individual insurance companies fail to pay.

There were several claims in the past of insurance companies failing to pay their clients’ claims, something that worked against the industry’s reputation.

When operational
Regulations on the Policy Holders’ Compensation Fund are expected to be finalised by December this year, with an aim of having it operational by January next year, according to IRA chief executive officer, Mr Ibrahim Kaddunabbi Lubega.

If finalised, Mr Kaddunabbi added, the Policy Holders’ Compensation Fund would help enhance protection of policyholders, minimise the risk of moral hazards and provide certainty on the level of compensation when an insurer becomes insolvent.

The Fund is also expected to establish a reliable system to facilitate the collection, custody, investment and administration of levy contributions to the policy holder’s compensation fund and ensure speedy settlement of genuine claims to prevent insurance fraud and other malpractices.