Policyholders Compensation Bill 2025: Strengthening Trust and Stability in Kenya’s Insurance Sector

Kenya is set to introduce a landmark law, the Policyholders Compensation Bill 2025, aimed at bolstering the protection of insurance policyholders and enhancing the stability of the country’s insurance sector. This new legislation establishes a comprehensive framework for compensating policyholders in the event of insurer insolvency and provides mechanisms for the resolution and monitoring of troubled insurers.

Overview of the Policyholders Compensation Bill 2025

The Bill, currently in its final draft form, seeks to create the Policyholders Compensation Fund (PCF), a statutory body tasked with safeguarding the interests of policyholders and claimants when insurance companies become insolvent or face financial distress. The Fund will serve as a safety net, ensuring that policyholders receive due compensation even if their insurer fails.

The Bill outlines the establishment, governance, and functions of the PCF, detailing how it will operate to provide compensation, oversee insurer resolution, and promote confidence and stability in the insurance market.

Key Provisions and Structure

Establishment of the Policyholders Compensation Fund

The PCF will be headquartered in Nairobi and governed by a Board of Trustees comprising representatives from government, insurance industry bodies, and the public.

The Board will include a Chairperson appointed by the President, the Commissioner of Insurance, the Cabinet Secretary for Finance, the Attorney General, and nominees from insurers, insurance brokers, and the public.

The Fund will have powers to manage assets, impose levies on insurers, invest surplus funds, and collaborate with local and international bodies.

Objects and Functions

The primary objectives of the PCF include:

• Compensating policyholders and claimants of insolvent insurers based on a defined schedule of protected benefits.
• Facilitating the transfer of long-term insurance policies from insolvent insurers to solvent ones, funding any deficits.
• Undertaking the resolution of troubled insurers through statutory management and liquidation.
• Monitoring insurers for early detection of financial difficulties and enabling prompt corrective action.
• Advising the Cabinet Secretary on policy matters related to compensation and insurer resolution.

Funding and Contributions

The Bill mandates that all insurers and their policyholders contribute to the PCF to finance compensation payments and operational costs.

Contributions are calculated as a minimum of 0.25% of the premium payable by both the insurer and the policyholder.

Insurers must collect contributions from policyholders at policy commencement or renewal and remit these alongside their own contributions within 30 days.

Compensation and Eligibility

Policyholders and claimants are eligible for compensation if their insurer is declared insolvent, either through liquidation or license cancellation by the Insurance Regulatory Authority.

The Bill defines conditions under which compensation may be granted or denied, including limits on claim amounts and eligibility criteria.

Claimants have the right to appeal decisions rejecting their claims within 30 days.

Monitoring and Statutory Management of Insurers

The PCF will conduct risk profiling and receive regular reports from insurers to monitor their financial health.

It will collaborate closely with the Insurance Regulatory Authority to intervene early and take corrective actions to prevent insurer failure.

In cases of insolvency, the PCF can be appointed as statutory manager or liquidator of the insurer, with powers to manage assets, stay legal proceedings, and ensure orderly resolution.

Offences and Penalties

The Bill establishes offences such as falsely holding out as a member of the Fund, providing false statements, or failing to provide required information.

Penalties include fines and additional court orders to enforce compliance.

Miscellaneous Provisions

The PCF will enjoy exemptions from tax and certain attachments to ensure smooth operation.

The Bill repeals conflicting provisions in existing laws and provides transitional arrangements for implementation.

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Implications for the Insurance Industry

The Policyholders Compensation Bill 2025 represents a significant step in protecting consumers and strengthening Kenya’s insurance sector resilience. By guaranteeing compensation to policyholders of insolvent insurers, the Bill aims to:

• Enhance public confidence in insurance products.
• Promote financial stability within the insurance market.
• Encourage prudent management and oversight of insurers.
• Provide a clear legal framework for insurer resolution and claims settlement.

For insurers, the Bill introduces mandatory contributions to the Fund, increased regulatory scrutiny, and potential financial obligations in the event of insolvency. It also calls for greater transparency and cooperation with the PCF and regulatory authorities.

Reinsurers operating in Kenya will also be affected, as the Bill’s provisions on insurer resolution and compensation have indirect implications on the broader insurance ecosystem, influencing risk management and underwriting practices.

Conclusion

Kenya’s Policyholders Compensation Bill 2025 is poised to transform the insurance landscape by establishing a robust policyholder protection system backed by a dedicated compensation fund. It balances the interests of policyholders, insurers, and regulators, aiming to foster a stable, trustworthy, and resilient insurance market.

As the Bill awaits formal assent and commencement, stakeholders in Kenya’s insurance industry are preparing to align their operations with its requirements, signaling a new era of enhanced consumer protection and sector stability.