Motorists to pay high insurance premiums for vehicles over 12 years

If you have a car older than 12 years or valued below Sh600,000, you may need to adjust your insurance premium budget.

This is after the High Court dismissed a case filed against the Insurance Regulatory Authority (IRA) and the Association of Kenya Insurers (AKI).

Kenya Human Rights Commission (KHRC) filed the case before Justice Lawrence Mugambi arguing that there was no public participation and that insurers were refusing to issue comprehensive covers for vehicles that were older than 12 years or were less than Sh600,000.

It also alleged that insurers had raised their cost by up-to 50 per cent of the initial premiums offered to motorists.

Nevertheless, Justice Lawrence Mugambi threw out the case after finding that KHRC had not disclosed the names of the insurance firms or any of the affected persons.

“In any case, the petitioner did not tell the court with exactitude which insurance companies were being referred to in the Petition. The petition is simply hypothetical and is not backed by any facts. In spite the petitioner stating that Insurance Companies had increased the premiums by 50 per cent and had refused to provide comprehensive cover for vehicles older than 12 years or of a value less than Sh600,000 in communication to their customers, there was no affidavit provided by any of the alleged customers to back this allegation,” said Justice Mugambi.

The Judge further said that IRA has no role in putting a cap on how much AKI members charge as premiums for the covers.

He stated that anyone who wished to insure their vehicles should be allowed to shop for the best offer that would best suit their pocket.

“There is no requirement in law that the Respondent that approves the increase of premiums or sets premiums for different insurance companies which are private business entities in a free-market economy. As attested by the Interested Parties they are responsible for pricing their products based on the assessment of the risk factors the product may attract,” he said.

According to KHRC, the justification for the increase was said to arise from surge in fraudulent claims.

It argued that this is not a reasonable basis for increasing premiums, as the law provides safeguards that allow insurance companies to repudiate unsubstantiated claims.

It accused the IRA of failing to protect premium holders and the public. According to the lobby, discriminating against those with vehicles older than 12 years or valued at less than Sh 600,000 was illegal.

In response, IRA argued that the case was defective as there was no evidence that it had violated the law.

It explained that the insurance business is driven by a free market policy where those with motor vehicles can use whichever insurer's terms they find favourable.

IRA also argued that no law requires the regulator to enforce public participation whenever AKI members review the policies.

In his supporting affidavit, Godfrey Kiptum, IRA Chief Executive Officer said that ARA is not mandated to cap the premium rates offered by insurers.

He stated that the case contained falsehoods adding that only third party insurance is mandatory in the country. Further he said that the 50 per cent increase starting from the year 2022 is false.

Kiptum said that owing to the high underwriting losses that insurance companies incurred, in a bid to curb the same, IRA developed the Motor Insurance Underwriting Guidelines, 2009, which came into effect on March 1, 2010. During the period the Guidelines were in force, he stated that the underwriting losses at the end of 2010 had declined by 32 oercent.

AKI’s CEO Thomas Maara also asked the court to dismiss the case. Maara asserted that it is not possible to have a blanket increase in premiums as alleged.

He argued insurance business is contractual between the insurance company and the policyholder.

Maara said that variance of premiums by various insurance companies does not deny a policy holder the right to access an insurance cover. Equally, he added that the insurance companies have a right to earn income from their insurance business.

According to him, insurance companies ordinarily set the premiums payable by their policyholders by considering a number of factors before setting the same.

The High Court suspended the directive two years ago. The rates were expected to hike by January 1, 2022. By dismissing the case, it has opened the floor for the insurers to implement the same.

KHRC said that one of the insurers had set Sh45,000 as the minimum premium for vehicles valued under Sh1 million unlike before when the premium was calculated as a percentage of the value of the vehicle.

Other firms, the court heard said they will only issue comprehensive cover to vehicles whose value is more than Sh600,000 and not older than 12 years.

Ordinarily, premiums for the comprehensive cover are tabulated using a definite formula of four per cent of the value of the motor vehicle.

The lobby argued that any amount above this has to be justified and has to involve consumers.

KHRC  further argued that the move was discriminatory, punitive and goes against consumer rights to access services at a reasonable cost.

“Considering the mandatory nature of motor vehicle insurance, then the said service has to be offered in a manner that protects consumers’ health, safety and economic interests,” says KHRC lawyer Kelly Malenya.