It is common knowledge that for an economy to fully develop its insurance industry must be robust and dynamic to meet all the challenges in that economy. This includes but is not limited to developing products suited for the particular economy, and developing products fast. The industry must think on its feet.
Other factors also come into play and all these complement one another so as to achieve the overall growth target of the industry. One of the most important drivers of insurance penetration is the intermediaries comprising of agents and brokers. They are the vital link that connects the consumers of insurance products and the sellers of the same. Suffice to say that without this vital link in the industry the penetration of insurance would be minimal or negligible and the two point four three percent we boast about and the ranking of Kenya as among the top six in insurance growth in Africa would not be there.
A question then comes to mind: wouldn’t it be foolhardy to compromise the intermediaries and why would one even think it? I will attempt to answer the two questions.
Insurance intermediaries as independent contractors in the industry have not been treated fairly as far as policies and regulations are concerned. Laws are made to defeat the very purpose they are supposed to protect and it looks like there is a plan to entirely phase out the intermediaries in favour of banks. But also one of the biggest issues is the skewed contracts insurance agents are coerced into signing with insurance companies. Coercion comes because the terms of the contract are not properly explained and even the time to properly read and understand the terms is not provided. They are quickly told to sign the contract but this is after a period of one year not at the inception of the contract. After a one year period most of the agents have already accumulated commissions and the refusal to sign the contract agreement is met with dismissal and loss of commissions. Talk of total blackmail.
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That would not be bad enough were it not for the devil in the details. It is only later when the contract terms start to be implemented that the agent gets a taste of what he signed up for. One of the most punitive terms of the contract is a clause known as commission claw-back. This is where the insurance company, with all the powers at its disposal on commissions decides how much the agent will be paid. The insurance company has the liberty to get back your life business commissions using one flimsy excuse or another, and it is not surprising for an agent to go home with a negative commissions slip. Let us understand that commissions earned are equivalent to a salary. Why any company would so treat anyone in this way is way beyond comprehension.
Looking at the Insurance Act Cap 487 of the Laws of Kenya, there is no mention of any punitive measure for an insurance company to withhold paying commissions. Through the Finance Act 2015, the Insurance Act was amended by reviewing the minimum capital requirements, introducing the risk capital and reviewing the requirements for registration of insurance agents amongst others.
Under Section 154 titled Business by Agents the Act states “Subject to the terms and conditions contained in the agreement or appointment letter referred to in section 151 (1) (b), an agent may enter into a contract which has the effect of enabling him to solicit or procure insurance business of the same class or subclass of insurance business or other classes of insurance business for more than one insurer, or to solicit or procure insurance business of the same class or sub-class of insurance business for more than one insurer”.
A draft insurance agency agreement can be gotten from the Insurance Regulatory Authority (IRA) website and while it is not the model contract we would have hoped for, it at least addresses the issue of fair compensation to insurance agents. The draft insurance agents’ agreement from the IRA website under Miscellaneous provisions states, “The contract constitutes the entire agreement between the parties hereto and supersedes any and all prior contracts and relations between the parties hereto relating to the company’s business other than debts owed or guaranteed of payments made by the life assurance agent to the company”.
The draft very well states that the only reason you can get back an insurance agent’s commissions is strictly under debts owed. Any other practice is illegal. Since the practice started about twenty years ago by one of the leading life insurance companies in Kenya, billions of shillings have been harvested from insurance agents and this has so demoralized them that thousands have left the industry. Is it any wonder that insurance penetration in this country is on a downward spiral? The regulator is surely sleeping on the job and they should wake up and do their mandate of regulating and enhancing insurance growth by putting in place sound policies and practices.
Washington Ndegea is Chairman, Bima Intermediaries Association of Kenya (BIAK).