Lawyers take on insurance regulator

Lawyers have gone to court seeking to have the Insurance Regulatory Authority’s powers to name managers of struggling underwriters among other issues clipped. FILE PHOTO | NMG 

By SAM KIPLAGAT

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Summary

• Companies that have gone under include United Insurance Company, Standard Assurance Company, Blue Shield Insurance Company and Concord Insurance Company, whose statutory managements have been continuously extended.
• In Blue Shield, Mr Edward Ouko says there was no criteria used in appointing the statutory manager and wonders what informed the Sh1.2 million monthly salary paid to Mr Eliud Muchoki Muriithi.
• Blue Shield, which was incorporated in December 4, 1983 was placed under receivership on September 15, 2011, and Mr Muriithi appointed the statutory manager, where he served until July 4, 2014.

The insurance regulator is on the spot after the Law Society of Kenya (LSK) moved to court seeking to clip its powers in appointing statutory managers of underwriters placed under receivership.

This follows revelations by the Auditor General that those named to oversee fallen underwriters have instead been lining their pockets with millions of shillings at the expense of reviving the firms.

Companies that have gone under include United Insurance Company, Standard Assurance Company, Blue Shield Insurance Company and Concord Insurance Company, whose statutory managements have been continuously extended.

In Blue Shield, Mr Edward Ouko says there was no criteria used in appointing the statutory manager and wonders what informed the Sh1.2 million monthly salary paid to Mr Eliud Muchoki Muriithi.

“It cannot be ascertained whether he was the most qualified and competent statutory manager and whether the Sh47,200,000 he received the entire period was commensurate to his competency,” the report by Ouko reads.

A further Sh1,151,722 was spent by Mr Muriithi as business entertainment expenses. The vouchers effecting these payments did not indicate how these expenditures related to the organisation goals and objectives and there was no standard operating procedures to guide how they ought to have been effected, the report says.

READ: Former Blue Shield statutory managers face prosecution

Blue Shield, which was incorporated in December 4, 1983 was placed under receivership on September 15, 2011, and Mr Muriithi appointed the statutory manager, where he served until July 4, 2014.

The report noted that in December 2012, Mr Muriithi increased his salary to Sh1.6 million per month and paid himself Sh400,000 per month for 19 months, over and above the approved remuneration.

The law society now says the provisions of the Act relating to the appointment of statutory managers and declarations of moratoriums are inconsistent with the Constitution and ought to be declared null and void.

In a sworn statement, LSK chief executive Mercy Wambua said the Commissioner of Insurance and IRA are in breach of their duties and have abused and misused their powers by failing to conduct the required management of several insurance companies with reasonable speed.

She said the regulator has instead been installing managers and placing infinite moratoriums and unreasonably lengthy receivership spells.

Other than declaring some sections of the Insurance Act unconstitutional, the society wants the High Court to issue an order directing the Commissioner of Insurance, IRA, Police Holders Compensation Fund and the AG to take measures that would bring closure to the continued statutory management of four insurance companies.

According to the audit report, the company’s revenue stream comprised rental incomes earned from the lease of Blue Shield Towers and interest or dividends earned from investments.

A total of Sh477,071,604 was collected by the two statutory managers and banked.

Mr Ouko noted that an expenditure of Sh491,401,825 was incurred during the period under probe. The report said a total of Sh9,427,771 was paid without supporting documents such as invoices, receipts, vouchers or inspection reports to prove that the relevant services or goods were delivered.

The probe followed a request by the Directorate of Criminal Investigations (DCI) in 2016 for an inquiry into alleged misappropriation of funds and assets at the company. The special audit was conducted from May 13, 2016 to July 29, 2016.

Early this month, the Director of Public Prosecutions recommended the prosecution of former statutory managers of the fallen underwriters. In a letter to the Director of Criminal Investigations, Mrs Dorcas Oduor, who is the secretary, public prosecutions forwarded the report to the DCI, asking him to record statements from the concerned parties.

Mrs Oduor said the Auditor General pointed out in the report, matters of fact adding that it was her conclusion that on the face of it, and in the absence of an explanation, there was sufficient evidence to hold the suspects criminally culpable.

“To enable us make a final decision on this matter, urgently cause the suspects if they so wish, to record statements under the inquiry on the issues raised against them, the proposed charges and the report of the Auditor General,” she said.

Mrs Oduor directed that the file should be resubmitted to the DPP’s office within seven days.

READ: Blue Shield duo wins liquidation reprieve

The report further noted that the total expenditure of Sh491,401,825 spent during the said period, exceeded the revenue collected of Sh477 million. The Auditor General said that the company could have utilised part of its call deposits to sustain operational or recurrent expenditure.

Mr Ouko faulted the Commissioner of Insurance for appointing Mr Muriithi without documenting the objective criteria to assure that he was the most qualified statutory manager.

He said the company was managed without budgets to guide financial operations. “This is an indicator of inadequate budgetary controls during the statutory period,” he said.

He recommended to the IRA to put in place mechanism to ensure operations at insurance companies placed under receivership are guided by proper budgetary controls.