Insurance law in Kenya is governed mainly by the Insurance Act (Cap 487), administered by the Insurance Regulatory Authority (IRA). Whether you are an insurer, a broker, an agent or a business buying commercial cover, the Act decides who may sell insurance, what capital and reinsurance they need, how premiums must move, and where you go when the regulator takes a decision against you.
What the Authority does under insurance law in Kenya
Section 3A(1) of the Act sets the Authority’s objects and functions. They include ensuring the effective administration, supervision, regulation and control of insurance and reinsurance business in Kenya, formulating and enforcing standards for the conduct of that business, and licensing all persons involved in or connected with insurance business. The Act expressly lists insurance and reinsurance companies, insurance and reinsurance intermediaries, loss adjusters and assessors, risk surveyors and valuers.
Licensing: insurers and intermediaries
Section 19(1) provides that only a person licensed under the Act may carry on insurance business in Kenya, subject to exceptions in the Act. Under section 19(3), a person who carries on insurance business in contravention of that rule commits an offence and is liable on conviction to a fine not exceeding five million shillings.
A licence is not a general permission under insurance law in Kenya. Under section 31(1), registration is approved by the Board in respect of the class or classes of insurance it directs, so an insurer should confirm that the class it wants to write is covered. The applicant must also satisfy the minimum capital requirements in the Second Schedule (section 23(1)), make the deposit required by section 32, and show adequate reserves, assets in Kenya and suitably qualified staff, including a fit and proper principal officer.
Licences expire on 31 December of the year of licensing. Section 188 requires a renewal application to be made on or before 30 September of the preceding year, and a licence continues in force while a timely renewal application is being determined, subject to the power to extend time under section 188(3).
Intermediaries are licensed separately. The Act defines an insurance broker as an intermediary involved in placing insurance business with an insurer or reinsurer for payment by way of brokerage or commission, acting for or on behalf of an insurer, policyholder or proposer. An agent is a person, who is not a salaried employee of an insurer, who solicits or procures insurance business for an insurer or broker in return for commission. Section 153 lists the matters the Commissioner must be satisfied about before licensing, including, for a broker, that the professional indemnity policy is satisfactory. Section 154 allows an agent, subject to the terms of the agency agreement or appointment letter, to procure business for more than one insurer.
Reinsurance and capital
Under section 29(1), a person cannot be registered as an insurer unless it has reinsurance strategies and arrangements approved by the Commissioner for the liabilities it insures. Section 29(2) adds that the Commissioner will not approve reinsurance arrangements unless the premium and commission, or the manner of working them out, are specified in the reinsurance contract. For an insurer entering a new class or taking a much larger single risk, the reinsurance position must be settled first.
Capital is supervised on a risk basis. Section 41(1) requires an insurer to maintain a capital adequacy ratio of one hundred per cent at all times, and an insurer writing both long term and general business must maintain separate ratios (section 41(2)). Section 42 requires the capital required to take into account insurance risk, market risk, credit risk and operational risk, using capital charges that the Authority determines. Two insurers writing the same premium volume can therefore need different capital.
Premiums, commission and the Policyholders’ Compensation Fund
Section 156 contains rules that catch many businesses by surprise. An insurer must not assume a risk until the premium payable is received (section 156(1)), and an intermediary must not receive any premium on behalf of an insurer (section 156(2)). An intermediary that breaches that rule is liable to a penalty of twenty per cent of the unremitted premium on each contravention, payable to the Policyholders’ Compensation Fund (section 156(3)). Its officers and directors commit an offence, punishable by a fine of up to one hundred thousand shillings, imprisonment for three months, or both (section 156(4)). In the other direction, an insurer must pay an intermediary’s commission within thirty days of receiving the premium (section 156(5)).
The practical lesson for a corporate buyer is to pay premium to the insurer, not through an intermediary, and to confirm in writing when cover starts. Section 179 provides for the Policyholders’ Compensation Fund, which exists to compensate claimants of an insurer placed under a manager or whose licence has been cancelled.
Disclosure and policy terms
The Act does not itself codify the duty of utmost good faith. That doctrine comes from the common law and the policy contract, and it runs both ways: the insured must disclose facts material to the risk, and the insurer must deal openly on the terms it relies on. Before relying on a non-disclosure argument or a hidden exclusion, check the policy wording, the proposal form and the correspondence together. Advice at that stage is usually cheaper than a dispute later.
Enforcement and appeals
Under section 196(2), the Commissioner may, after giving a licensed person a reasonable opportunity to make representations, cancel a licence in whole or in respect of part of the business, including where the person fails to comply with the Act or with regulations or directions made under it. A person aggrieved by a decision of the Commissioner may appeal to the Tribunal established under section 169 within one month from the date the decision is intimated (section 173(1)). The Tribunal may uphold, reverse, revoke or vary the decision. A further appeal to the court lies only on a question of law, again within one month (section 173(3)). Diary both deadlines when a decision letter arrives.
Practical compliance checklist
Insurance law in Kenya rewards routine housekeeping. Confirm every licence in the chain is current and covers the class of business involved: the insurer, the broker or agent, and any loss adjuster or valuer. Check that premiums flow to the insurer and that cover start dates are documented. Review the reinsurance programme whenever the book changes. For brokers, keep the professional indemnity cover required at licensing in force. Our article on pension and retirement benefits compliance covers the parallel regime for retirement schemes.
How We Can Help
Clay & Associates Advocates advises insurers, reinsurers, brokers and corporate policyholders on licensing, reinsurance and intermediary arrangements, policy wording and claims disputes. We can review your licence position, check an intermediary agreement against section 156, or prepare an appeal against a regulatory decision. See our regulatory compliance practice or contact us to discuss your matter.
Sources: Insurance Act, Cap 487 (Kenya Law); Insurance Regulatory Authority.
Frequently asked questions
What happens if I carry on insurance business without an IRA licence?
Section 19(3) of the Insurance Act makes it an offence, with a fine on conviction of up to five million shillings.
Can my broker collect premium on behalf of the insurer?
No. Section 156(2) says an intermediary shall not receive premiums on behalf of an insurer, and section 156(1) says the insurer does not assume the risk until it receives the premium.
How long do I have to appeal a decision of the Commissioner of Insurance?
Section 173(1) allows an appeal to the Tribunal within one month from the date the decision is intimated.
When do insurance licences expire?
Under section 188, a licence expires on 31 December of the year of licensing, and renewal applications are due by 30 September of the preceding year, subject to extension by the Commissioner.
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This article is general information on Kenyan law as at its publication date, not legal advice. Reading it does not create an advocate and client relationship.
