Motorists with old vehicles may now pay more for insurance

Massive traffic jam along the Nakuru-Nakuru Highway as hundreds of passengers and motorists make their way upcountry for Christmas and New Year celebrations on December 23, 2024. Police officers were strategically positioned to deter rogue drivers from overlapping, a common practice that often worsens congestion on this busy route. [Kipsang Joseph, Standard]

If you own a car older than 12 years or valued below Sh600,000, you may need to adjust your budget this year to accommodate higher insurance premiums.

This follows the High Court’s dismissal of a case filed against the Insurance Regulatory Authority (IRA) and the Association of Kenya Insurers (AKI).

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

KHRC also alleged that insurers had increased their premiums by up to 50 per cent of the initial rates offered to motorists.

However, Justice Mugambi dismissed the case, finding that KHRC had failed to disclose the names of the insurance firms or any of the affected individuals.

“In any case, the petitioner did not specify which insurance companies were being referred to in the petition. The petition is hypothetical and not supported by any facts. Although the petitioner claimed that some insurance companies had increased premiums by 50 per cent and refused to provide comprehensive cover for vehicles older than 12 years or valued below Sh600,000, no affidavit was provided by any affected customers to substantiate this allegation,” said Justice Mugambi.

The judge further clarified that the IRA has no role in setting caps on how much AKI members charge for premiums.

He stated that anyone seeking vehicle insurance should be free to shop around for the best offer that suits their budget.

“There is no legal requirement for the respondent to approve premium increases or set premium rates for different insurance companies, which are private entities operating in a free-market economy. As noted by the interested parties, insurers are responsible for pricing their products based on an assessment of the risk factors involved,” he said.

KHRC contended that the justification for the premium increases was a surge in fraudulent claims. It argued that this was not a reasonable basis for higher premiums, as the law already provides mechanisms to repudiate unsubstantiated claims.

The commission also accused the IRA of failing to protect policyholders and the public, arguing that discriminating against owners of vehicles older than 12 years or valued below Sh600,000 was unlawful.

In response, the IRA argued that the case was defective as there was no evidence of any legal violation. It explained that insurance operates within a free-market framework, allowing motor vehicle owners to select insurers whose terms they find favourable.

The IRA also asserted that there is no legal obligation for the regulator to enforce public participation when AKI members review their policies.

In a supporting affidavit, Godfrey Kiptum, the IRA’s Chief Executive Officer, stated that the authority is not mandated to cap premium rates set by insurers. He further refuted claims of a 50 per cent increase in premiums starting from 2022, describing them as false.

Kiptum explained that due to high underwriting losses incurred by insurance companies, the IRA developed the Motor Insurance Underwriting Guidelines in 2009, which took effect on 1 March 2010. He noted that these guidelines helped reduce underwriting losses by 32 per cent by the end of 2010.

AKI CEO Thomas Maara also urged the court to dismiss the case, arguing that a blanket increase in premiums, as alleged, was not possible. He emphasised that insurance contracts are agreements between the company and the policyholder, and the variation of premiums by different insurers does not deprive policyholders of access to cover.

Maara added that insurers are entitled to earn income from their businesses and typically calculate premiums based on various factors.

The High Court had previously suspended the directive two years ago, and the rate hikes were initially expected to take effect on 1 January 2022. By dismissing the case, the court has cleared the way for insurers to implement the increases.

KHRC revealed that one insurer had set Sh45,000 as the minimum premium for vehicles valued below Sh1 million, compared to previous calculations based on a percentage of the vehicle’s value. Other firms, the court heard, would only offer comprehensive cover for vehicles valued above Sh600,000 and not older than 12 years.

Ordinarily, premiums for comprehensive cover are calculated using a standard formula of four per cent of the vehicle’s value.