FAQs
What is the Policyholders Compensation Fund?
The Policyholders Compensation Fund is an insurance compensation scheme established within the provisions of Section 179 of the Insurance Act for the primary purpose of protecting the policyholders of an insolvent insurance company by paying them compensation for their unsettled claims.
Why was the PCF established?
The establishment of the Fund was as a result of reforms undertaken in the insurance sector in response to the collapse of several insurance companies which led to policyholder’s exposure to risk and losses of insurance benefits. The Fund’s mandate is to pay compensation which is intended to provide relief from the suffering policyholders undergo when an insurer collapses. By safeguarding the interests of policyholders, the fund contributes to the stability of the insurance industry by enhancing confidence.
When the fund was started?
The Fund was established on 24th September 2004 through legal notice 105 of 2004 signed by the Minister of Finance and commenced its operations on 1st January 2005.
What is the duration taken to declare an insurance company insolvent?
There is no specific duration or time taken to declare an insurance company insolvent. Before a company is declared insolvent, the IRA appoints a statutory manager to try and revive the company. The statutory manager will take over the company for a specified time period but depending on the circumstances of the work, can apply for an extension with the Authority. In the event that the manager successfully revives the company, it will not be declared insolvent. Should the manager be unable to revive the company, they will through a report inform the IRA who will file for a winding up petition at the courts. The period for hearing such a petition can only be determined by the legal process. It is thus difficult to quantify the duration it takes to declare an insurance company insolvent.
What are the rights of policyholders in relation to compensation from the fund?
The insurance policyholders are the beneficiaries of the Fund. It is therefore the policyholders right to be compensated when the company providing them with an insurance cover is declared insolvent by a court of law.
What is the process of seeking compensation?
What happens to policyholders of insurance companies that are under statutory management who have been sued by third parties? Can the law protect them from such legal proceedings during the period the insurance company is under statutory management?
Do policyholders of Stallion Insurance Company qualify to claim for compensation?
No, Policyholders of the insurance Companies that collapsed before the fund started receiving contributions in January 2005 do not qualify for compensation from the fund. Stallion Insurance Company Ltd is one of these companies. Others include Access Insurance Company Ltd, Kenya National Assurance Co. Ltd, and Lakestar Insurance Co. Ltd.
What is the relationship between the I.R.A and the PCF?
- The IRA and the PCF are both stakeholders in the Insurance sector. However, IRA regulates and supervises the industry players while PCF compensates policyholders of the wound up Insurance Companies.
- Both bodies have been established under the insurance act.
- Both establishments are mandated to protect the interests of insurance policy holders and promote the development of the insurance sector.
Why should Policyholders pay the PCF levy? Insurance Companies should pay it?
The beneficiaries of the fund are policyholders and not the insurance companies. By contributing to the fund, the policyholders are meeting their statutory obligation of ensuring that they will be compensated should their insurer be declared insolvent.
What are the funds collected used for?
The Fund collects contributions for the sole purpose of compensation of Policyholders. However, the Fund being an entity has operational needs. Therefore, 10% of the total contributions received are allocated to the administration of the Fund. The balance of 90% is invested in Government Securities like Treasury Bills to earn interest.