Since 2005, insurance companies and policyholders have collected Sh15 billion under the Policyholders Compensation Fund (PCF) to be utilized whenever an insurance company collapses.
For many years the rate at which claims have been settled has been painfully slow, with the policyholders in the recently collapsed Resolution Insurance Company set to be the first to get paid immediately.
PCF Managing Trustee William Masita talked to the Business Daily on how the claims settlement is becoming faster.
AS CREDITORS CART AWAY MOVABLE GOODS BELONGING TO RESOLUTION INSURANCE FOR AUCTION SHOULD CUSTOMERS BE WORRIED THAT THEY MAY NOT ACCESS THEIR PREMIUMS AND CLAIMS?
Pursuant to the appointment as Statutory Manager of Resolution Insurance, PCF has declared a moratorium on the payments by the said insurer to its policyholders and all other creditors for a period of 12 months.
With the declaration of the moratorium, policyholders have been shielded against claims or orders that would have ordinarily been paid by Resolution.
HOW FAST WILL POLICYHOLDERS GET ACCESS TO THEIR PREMIUMS AND CLAIMS?
PCF will initiate the process of compensating policyholder claims within the next 14 days. The maximum compensation payable by the Fund on any one claim lodged by a claimant is Sh250,000.
RESOLUTION BECOMES THE FIRST TO ENJOY BENEFITS OF THE CHANGE IN LAW ON IMMEDIATE PAYMENT. DO YOU THINK THIS WILL IMPROVE THE NUMBER OF CUSTOMERS WHO CLAIM COMPENSATION FROM PCF?
The law was changed so that when an insurance company is unable to pay claims, the commissioner of insurance will either take away the company license or place it under statutory management. In both cases, we will come in immediately and start the process of compensation.
The impact of this will be faster clearance of claims, the response rate will be higher because the passage of time will be shorter. It will be like processing live claims for the companies.
SOME OF THE OLD INSURANCE COLLAPSES LIKE CONCORD GOT VERY FEW CLAIMANTS. HAVE YOU CONCLUDED THEIR COMPENSATION?
We are still receptive to any claimants who can bring a claim. As we speak, we have received 90 claims out of an expected 1,500. We have paid out 39 policyholders and rejected five claims. The rest are still being processed.
DO THE VERY FEW CLAIMS SUGGEST SOME SORT OF FRAUD AMONG INSURANCE CUSTOMERS?
I do not think it is fraud. If that was the case many people would have come out to take advantage of the fact that the principal company is not there to claim the money.
You can say the low response rate of the claims was probably because of the period that had passed between when the company was under statutory management and our commencement of making payments due to the previous law which required a company to go into liquidation first before we start compensating.
WHAT HAPPENS TO THOSE WHO HAVE NOT HAD A CHANCE TO FILE THEIR CLAIMS?
We should have stopped by now and surrendered the files back to the official receiver but we have given ourselves up to June 30, the end of the financial year. Then we will hand over to the official receiver, the appointed liquidator of the company.
Even at that point if we receive a claim, I think we can still process but the files will now be with the official receiver so they can continue with their own process.
WHAT LESSONS DID YOU LEARN FROM THIS FIRST PAYOUT AND HOW DOES IT INFORM FUTURE PAYMENTS?
Yes, there were a lot of lessons learned from the compensation to Concord. The first one is apathy. The response rate for Concord was very low, so we decided that going forward we are going to do a lot of publicity around this process.
We have activities lined up. We will be running a campaign in the next few weeks so more people are informed. As we do that for Standard Insurance we will also be informing people about Concord because we can still process their claims.
HOW MANY CLAIMS FOR STANDARD HAVE YOU RECEIVED?
We made the announcement for Standard just a week ago and you know for compensation the first week is usually for people to start getting their documentation in order.
So far we have received five claims and several inquiries, but for some of them the documentation is not in order, some are not certified, so we are guiding them. We take a lot of time also to ensure policyholders have their records in order.
We do not just decline claims because of one or two missing documents we wait for them to bring all the documents, we even have staff who help the policyholders fill the forms in the required format to avoid back and forth between the policyholders and ourselves
WHEN ARE YOU PAYING CUSTOMERS OF THE OTHER COLLAPSED INSURERS?
Previously the law stated you only process a company under liquidation. We had four companies under statutory management and now the two, Concord and Standard have gone to liquidation and those are the ones we have processed.
The law may not apply retrospectively in terms of BlueShield and United Insurance, which are still in statutory management with their cases ongoing. We are making arrangements for the two for future compensation.
HAVE YOU THOUGHT OF INCREASING THE COMPENSATION TO IMPROVE THE RESPONSE RATE?
We plan to do an actuarial study in the next financial year and also to determine the sufficiency of the maximum amount we can pay and the sustainability of the fund going forward.
It would possibly result in an upward review of the amount because of inflation. I would not put a figure to it. In the banking sector, for example, it is at Sh500,000 so any range between Sh250,000 and Sh400,000. But there may be a lot of variables that will go into it.
AS THE FIRST MANAGING TRUSTEE WHAT WAS YOUR BIGGEST CHALLENGE IN MAKING THE PAYOUTS?
When I was appointed, there were no staff at the fund, so we had to get staff. Now we are 13 and are intending to recruit another 12. When we were processing Concord we did not have staff and were relying on temporary staff, so for now, we are progressing well.
The challenge sometimes is you do not have the documents in the correct order. A case in point is Standard Assurance where the statutory manager only gave us the correspondence file and that was all.
So we had to start reconstructing the requests, hence the delays in commencing the compensation. We have reconstructed over 9,000 files, all of which may not be claims, but policyholders of the insurer. We have put everything in order in a way that now when a policyholder comes we can go back to the files.
For Standard, there were some disagreements between the statutory manager and the appointing authority. That explained why we had minimal documentation.
So you find some statutory management reports were not available or were not done. We spent a lot of time trying to put the documents together before beginning this process.