Win for Motorists as Court Makes Landmark Ruling on Comprehensive Insurance

Kenyan motorists have been handed a sigh of relief after the Court of Appeal barred the Insurance Regulatory Authority (IRA) from setting a minimum premium price on motor vehicle insurance. This means the market will continue to determine insurance pricing for customers and thus a relief to members of the general public.

The three judge bench of the Appellate court comprising Justices Mohammed Warsame, Sankale ole Kantai, and Pauline Nyamweya determined that the 7 per cent minimum premium set by IRA in 2009 as unreasonable and subverts the minimum industry pricing rate which stands at 4 per cent.

Following the judgement, motorists will continue to enjoy insurance services from even the cheapest of insurers in the market.

"From the foregoing analysis. it would have been more rational, reasonable. and less costly for IRA to prevent a crisis or mitigate its impact, than to directly regulate the supply of insurance services through price fixing, especially given the likely market effects, and that no market justification was provided by the IRA for this method of regulation," the three judge bench ruled.

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The judges further noted that IRA would have been better off rationalising the insurance industry to prevent a crisis or mitigate its impact rather than attempting to directly regulate insurance prices considering the likely market effects.

In its application to the court, the office of the Ombudsman argued that price fixing at a minimum premium rate of 7 per cent would leave smaller insurance companies at the mercy of their larger competitors and eventually be priced out of the market.

The Commission on Administrative Justice (CAJ) further argued that the insurance regulatory guidelines by IRA as set out in 2009 would create a monopoly and cartel within the motor vehicle insurance sector, pricing out smaller insurers and subsequently making premiums costlier for motorists.

A ruling by Justice John Mativo of the High Court in 2017 declared the 2009 IRA insurance regulatory guidelines null and void, prompting an appeal by the office of the Attorney General and IRA.

“From my interpretation and understanding of the provisions of the Statute on what regulation and supervision entails, I find nothing to suggest, even in the slightest manner, that regulation and supervision entail setting prices. I find no express or implied mandate in the Statute to suggest that the IRA has powers to issue the said guidelines,” Justice Mativo ruled then.

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“The Motor Insurance Underwriting Guidelines issues by the first respondent (IRA) under circular No. IC 07/2009 dated 20/11/2009 are illegal, unconstitutional, and therefore null and void for all purposes”.

In its defence, IRA argued that removing the minimum premium charges would collapse motor vehicle underwriters.

According to the insurance regulatory body, the minimum premium cap was introduced to prevent an impending collapse of several motor vehicle insurers who had been undercut by competitors without considering the risk parameters of different classes.

IRA told the court that it registered a Ksh1.161 billion loss in 2008 prompting the introduction of the said regulations to prevent further financial losses to insurers.

The insurance regulator argued that it had acted lawfully and that the move had stabilised the insurance sector, shielding companies from collapse.

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