UNIVERSITY OF NAIROBI SHOOL OF LAW
INSURANCE LAW ASSIGNMENT
PART A: HISTORY OF INSURANCE LEGISLATION IN KENYA
The notion of insurance in Kenya can be traced back to the “social insurance programme” which for a long time has been around Africa. However, the history of the development of commercial insurance in Kenya is closely related to its colonial heritage. Like some African and other developing countries, there was no specific insurance legislation in Kenya until 1960, when the Insurance Ordinance of that year was promulgated. Prior to the Ordinance, insurance companies had to comply only with the Companies Act. Moreover; the law relating to insurance had to be gleaned from provisions of a number of scattered statutes owing to lack of sector-specific legislation. Among such laws is government directives issued in 1978 by the Minister for Finance, which is also critical to the historical development of insurance legislation in the country. These directed that all insurance companies operating in the country had to seek local incorporation and that all imports into the country had to be insured locally, while reinsurance treaties arranged by local companies should be reviewed and approved by Kenya Reinsurance Corporation, as the office of the supervisory authority had not been established.1 Thereafter; Kenya like other emerging nations in Africa realized that there was need to introduce legislation on insurance to guide the growth of the industry and make it relevant to the national economy. Thus; the Insurance Act, Chapter 487 of the Laws of Kenya, was enacted in 1984 to amend and consolidate laws relating to insurance. It became operational in 1987. Since then; it has been an effective instrument for regulating the insurance industry, being complemented by the Workmen's Compensation Act (Cap 236) which provides for compensation to workers for injuries or death suffered in the course of their employment; the Insurance (Motor Vehicle Third Party Risks) Act (Cap 406) and the Marine Insurance Act. However; over time it has become a less than ideal piece of legislation and tool for responding to the changing insurance environment. In this regard, the Act has been amended substantially during its life. These amendments have been intended to tackle the myriad of challenges that have been bedeviling the industry. Firstly; negative market perception occasioned majorly by the significantly huge numbers of non-paid claims that lie about within the market due to insolvency has been the key challenge. This may be attributed to high claims of over 61% on average. At least 6 insurers collapsed between 1996 and 2005. Some have been put under statutory management. Secondly; insurance products are perceived as complex and relatively expensive by the low-income households who form the larger segment of the population. To counter these twin problems, the 2006 amendment to the Insurance Act established Insurance Regulatory Authority (IRA), a statutory government agency to regulate, supervise and develop the insurance industry.2 Furthermore; the Policyholders Compensation Fund (PHCF), a State Corporation under the Ministry for Finance was established through the Legal Notice No.105 of 2004 and commenced its operations in January 2005. The Fund was established for the primary purpose of providing compensation to policyholders of an insurer that has been declared insolvent and for the secondary purpose of increasing the general public’s confidence in the insurance sector. It was later encapsulated in the Act by dint of section 179 of the Insurance Act. It is also governed by the Insurance (Policyholders Compensation Fund) Regulations, 2010.3 To strengthen sector solvency, the Insurance Regulatory Authority introduced the capital requirements in 2007 which became effective in June...
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