NAIROBI, November 21 – Acting Finance Minister John Michuki on Friday directed shareholders of insurance companies with over 10 per cent equity not to be involved in the management to reduce incidences of fraud.
Speaking during an insurance conference, Mr Michuki stated that this would reduce conflict of interests especially during the appointment of directors.
“Insurance companies hold huge amounts of public funds on trust. However, some industry managers have failed the test of trust and have badly managed those funds leading to the collapse of insurance companies and brokers,” he explained.
He further pointed out that 40 per cent of claims paid out by Public Service Vehicle underwriters were considered fraudulent.
He stressed the need to minimise such cases of fraud.
“This cannot be allowed to continue. Of particular concern is the case of owner managed companies where there is no clear distinction between ownership and control,” he emphasised.
The insurance industry contributed 2.6 per cent of gross domestic product (GDP) last year.
The Finance Minister said that even though gross direct premiums grew by about 15 percent over the same period, the industry’s contribution to GDP growth in relation to other sectors within the financial services had been below expectation.
He pointed out that the industry had a huge potential for growth which was yet to be exploited.
“As at December 31, 2007 the number of persons covered under individual life policies were slightly above 400, 000 representing a mere 1.1 percent of the population.”
The number of Kenyans covered by group life insurance schemes was approximately 500,000 while people who were covered by some form of medical insurance was also half a million.
Mr Michuki said the statistics were vital as they clearly indicated the presence of a huge unexploited market for the insurance industry.
At the same time, the Insurance Institute of Kenya Director James Muiruri welcomed the move and said that it would streamline the insurance industry.
“If a shareholder owns at least 10 per cent of the company, they will not be allowed to be managers at the same time,” Mr Muiruri said.
He further stressed the need of separating ownership from management.
Mr Muiruri pointed out that the formation of a task force by the Ministry of Transport and the regulatory authority would ensure better management of the public transport sector.
“Insurance companies together with brokers will have to come together and maintain a single database so that it will not matter whether a driver or a car owner has insured their vehicle in Bungoma,” Mr Muiruri explained.
“If they do something wrong in Bungoma, and somebody taps into the database, we should be able to see that driver is not a good driver,” he stated.