When an insurance company closes or collapses in Kenya, several steps and mechanisms are put in place to protect policyholders and manage the aftermath. Here’s what typically follows:
Statutory Management: When an insurance company faces financial difficulties and cannot meet its obligations, it may be placed under statutory management. This means the company is taken over by a statutory manager appointed by the Insurance Regulatory Authority (IRA).
Role of the Policyholders Compensation Fund (PCF): The Policyholders Compensation Fund in Kenya plays a crucial role in protecting policyholders of an insurer that has been placed under statutory management. The PCF provides compensation to claimants, ensuring that policyholders are not left entirely without recourse.
Compensation Process:
- Eligibility: Policyholders and claimants of the insolvent insurance company are eligible to receive compensation from the PCF.
- Claims Submission: Affected policyholders must submit their claims to the PCF for evaluation. The statutory manager usually assists in this process by providing necessary information and guidance.
- Evaluation and Payment: The PCF evaluates the claims to determine their validity and the amount payable. Once the claims are approved, compensation is paid out to the claimants.
Limitations and Caps: The PCF typically has limits and caps on the amount of compensation it can provide. This means that policyholders may not receive the full amount they are owed but will receive a portion as stipulated by the PCF guidelines.
Continuation of Cover: In some cases, the statutory manager may arrange for the transfer of the insurance company’s policies to another insurer, ensuring continuity of cover for policyholders.Liquidation and Asset Distribution: If the insurance company cannot be rehabilitated, it may be liquidated. During liquidation, the company’s assets are sold, and the proceeds are used to pay off its debts, including any remaining claims from policyholders. The statutory manager oversees this process.Legal Recourse: Policyholders may also have the option to pursue legal recourse for any outstanding claims not covered by the PCF, although this can be a lengthy and complex process.
By having these mechanisms in place, Kenya aims to protect policyholders and maintain confidence in the insurance sector, even in cases where an insurance company faces financial collapse.
