User talk:Mutaicastro

INSURANCE LEGISLATION IN KENYA

A study on the development and current industry paradigms that needs reform.

By

CASTRO KIPKEMBOI MUTAI

MARCH 2003

MOI UNIVERSITY, FACULTY OF LAW COURSE: FLB 400 RESEARCH PARER (DISSERTATION)

TOPIC

INSURANCE LEGISLATION IN KENYA

A study on the development and current insurance paradigms that needs reform.

Submitted by CASTRO KIPKEMBOI MUTAI

SUPERVISOR MR. ANTONY WAMBUGU MUNENE MOI UNIVERSITY FACULY OF LAW

MARCH 2003 MOI UNIVERSITY FACULTY OF LAW

COURSE: FLB 400 RESEARCH PAPER (DISSERTATION)

TOPIC

INSURANCE LEGISLATION IN KENYA A study on the development and current industry paradigms that needs reform.

A dissertation submitted to the Faculty of Law, Moi University in partial fulfilment of the requirements for the award of the Degree Bachelor of Laws LLB

Submitted by

CASTRO KIPKEMBOI MUTAI

Supervisor

MR. ANTONY WAMBUGU MUNENE MOI UNIVERSITY, FACULTY OF LAW MARCH, 2003

DECLARATION

I solemnly declare that this dissertation is my original work and to the best of my knowledge and understanding, the same has never been presented in any other university or institution for the purpose of examination.

DEDICATION

I dedicate this work my auntie Margaret Mtai for her continuous support in my studies

ACKNOLEDGMENT

I acknowledge Mr. Anthony W. Munene my supervisor for his assistance that enabled me write this work and Mr. Lugulu the dean faculty Moi university for introducing me to insurance law that inspired me to write this work. I thank my mum and dad for her continuous support to educate me, and most of all to almighty God for whose pleasure we are happy.

TABLE OF CONTENTS PRELIMINARIES

0.1	INTRODUCTION 0.2	PRELIMINARIES 0.3	STATEMENT OF THE RESEARCH PROBLEM 0.4	JUSTIFICATION OF THE STUDY 0.5	RESEARCH OBJECTIVES 0.6	SCOPE ANDS LIMITATION OF THE RESEARCH 0.7	HYPOTHESIS 0.8	METHODOLOGY

CHAPTER ONE

1.0	DEVELOPMENT OF INSURANCE LAW IN KENYA

CHAPTER TWO

2.0	A CRITICAL APPRAISAL OF THE INSURANCE ACT CHAPTER 487 LAWS OF KENYA 2.1	INTRODUCTION 2.2	THE COMMISSIONER OF INSURANCE 2.3	PROTECTION OF THE POLICY HOLDERS BY THE INSURANCE ACT 2.3.1	PRE REGISTRATION REGULATIONS 2.3.2	POST REGISTATION REGULATIONS 2.4	SOLVENCY MARGINS 2.5	PART IV OF THE ACT 2.6	ACTURIAL INVESTIGATION 2.7	INVESTMENTS 2.8	MANAGEMENT AND EXPENSES 2.9	REINSURANCE BUSSINESS IN KENYA 2.10	REGULATION OF PLAYERS IN THE INSURANCE INDUSTY BY TRHE INSURANCE ACT

CHAPTER THREE

3.0 OTHER STATUTES REGULATING THE INSURANCE INDUSTY IN KENYA

3.I THE MARINE INSURANCE ACT 3.2 THE INSURANCE MOTOR VEHICLES (Third Party Risk) Act 3.3 THE RETIREMENT BENEFITS ACT

CHAPTER FOUR

4.O FACTORS AFFECTING THE PERFORMANCE OF THE INSURANCE INDUSTY IN KENYA

4.I FACTORS THAT AFFECT THE DEMAND FOR INSURANCE

4.1.1 WEALTH AND INCOME 4.1.2 COMPUSORY INSURANCE 4.1.3 ATTITUDE TOWORDS RISK AND RISK AWARENESS 4.1.4 PRICE OF INSURANCE

4.2 INSURANCE FRAUD 4.2.1CORRUPTION AND FRAUD 4.2.2THE ROLE OF LAWYERS IN RELATION TO CORRUPTION 4.2.3THE COURTS INVOLMENT IN THE INSURANCE INDUSTY

4.3NEW CHALLENGES AFFEXCTING THE INDUSTRY IN KENYA

4.3.1 E-COMMRCE.E-INSURAQNCE 4.3.2 GLOBALISATION AND INSURANCE IN KENYA 4.3.3 HIV/AIDS AND INSURANCE

5.0 LESSONS AND RECOMMEDATION FROM THE STUDY

5.1 DEVELOPMENT OF INSURANCE LAW IN KENYA 5.2 THE INSURANCE ACT CAP 487 5.3 THE MARINE INSURANCE ACT CAP390 LAWS OF KENYA 5.4 THE INSURANCE OF MOTOR VEHICLES (THIRD PARTY RISKS    5.5 THE RETIREMENT BENEFITS ACT     5.6 FACTORS AFFECTING THE PERFORMANCE OF THE INSURANCE             INDUSTY     5.7 PROTECTION OF THE POLICY HOLDERS

6.O BIBLIOGRAPHY

TABLE OF STATUTES

KENYAN STATUTES

1.	African Life assurance Control Ordinance, 1945. 2.	Capitals Market Authority Act, Chapter 485 (a) Laws of Kenya. 3.	Central Bank of Kenya Act, Chapter 488 Laws of Kenya. 4.	 Income Tax Act, Chapter 370 laws of Kenya. 5.	Insurance Act. (1984), Chapter 487 laws of Kenya. 6.	 Insurance Motor Vehicles (Third Party Risks) Act, Chapter 405 laws of Kenya. 7.	Insurance Ordinance, 1960. 8.	Judicature Act, Chapter 8 laws of Kenya 9.	Kenya Reinsurance Act, 1970. 10.	Marine Insurance Act. Chapter 390 laws of Kenya 11.	National Social Security Fund Act, Chapter 258 laws of Kenya. 12.	 Retirement benefits Act 1997, Statute Number 3 of 1997 13.	Sessional Paper number 10 of 1967

UNITED KINGDOM STATUTES 14.	 Life Assurance Company Act of 1870 UK 15. Marine insurance act of UK1906 16.	 Policy Holders’ Protection Act 1975 UK

TABLE OF CASES

1.Jambo Biscuits Vs. Barclays bank (2002) llr 1381 ( cck 2.Geoffrey Obura Vs. Martha Koome(2001)ca 14/11 (200) llr 3251 3. Appolo Insurance Company Vs.Muthanwa and co. Advocated hccc 1945 of 1999 4.Susan Muteti Vs. Kenya bus Service c.a no. 15 of 1992 Nairobi 5.The case of wigmore(1791) 100er 976 at 978 6.The case of Gibbs (1982) 1 Lloyds rep 368 at 381 7.The case of Norwich Union (193

TABLE OF ABBREVIATIONS

1.	ABI- ASSOCIATION OF BRITISH INSURERS 2.	AKI. -ASSOCIATION OF KENYA INSURERS 3.	ALLER- ALL ENGLAND REPORTS 4.	ARC- AIDS RELATED CASES 5.	CAP-.CHAPTER 6.	CII CHARTERED INSURANCE INSTITUTE UNITED KIGDOM 7.	CMA- CAPITALS MARKET AUTHORITY 8.	DCC- DISPLINARY COMMISSION CASES 9.	E.COMMERCE- ELECTRONIC COMMERCE 10.	E-INSURANCE- ELETRONIC INSURANCE 11.	FSA- FINACIAL SERVISES AUTHORITY UNITED KINGDOM 12.	HIV/AIDS. 13.	IAS- INTERNATIONAL ACCOUNTING STARDARDS 14.	ICDC- INDUSTRIAL AND COMMERCIAL DEVELOPMENT CORPORATION 15.	ICT- INFORMATION AND COMMUNICATION TECHNOLOGIES 16.	IIK- INSURANCE INSTITUTE OF KENYA 17.	IMO- INTERNATIONAL MARITIME ORGANISATION 18.	KLR- KENYA LAW REPORTS 19.	LSK- LAW SOCIETY OF KENYA 20.	NDP- NATIONAL DEVELOPMENT PLAN 21.	NSSF- NATIONAL SOCIAL SECURITY FUND 22.	RB- RETIREMENT BENEFITS 23.	RBA- RETIRMENT BENEFITS AUTHORITY 24.	SG (POLICY)- SHIPS AND GOOODS POLICY 25.	UK- UNITED KINGDOM 26.	UNCTAD- UNITED NATIONS CONVENTION ON TRADE AND DEVELOPMENT 27.	WWW-WORLD WIDE WEB (INTERNET ADDRESS)

0.1 INTRODUCTION

“If I had my way, I would write the word ‘insurance’ over the door of every house and upon the blotting book of every man, because I am convinced that that for the sacrifices that are inconceivably small, families can be secured against catastrophes which otherwise would smash them up forever.”

Sir. Winston Churchill.

Although it might look old fashion, to introduce my topic with the wisdom of Sir. Winston church it still remains the most accurate rationale as to why insurance is important today. The insurance sector contributed tremendously also to the economy and second only to the Banking industry. Apart from acting as a source of funds through its pooling system, it provides protection to the insured against financial loss and also provides employment opportunities.

In light of the rapid pace of development of insurance industry, a review of the present insurance legislation is inevitable, although numerous changes have been done over the years the most significant one being, in 1984 when the Insurance Bill was published and subsequently in 1986 become law, the Insurance Act Cap 487. This Act aimed at regulating all the players in the insurance industry and to improve the sector, on numerous occasions it has been amended especially by the minister of finance through the Finance Act. The Act is now old and times have changed and therefore in line with the world trends reforms need to be affected to enable the insurance industry in Kenya to be better placed to serve Kenyans. Kenyans have on numerous occasions expressed their dissatisfaction on the state of affairs and seek the intervention of the Commissioner of insurance on outstanding claims dating back several years. Despite acknowledging the problems the Commissioner of insurance have failed to protect Kenyans acting like a toothless bull dog and at dusk like an undertaker to bury the insurance companies that have gone under like Stallion Insurance co. and Lakester insurance which have recently been declared insolvent. Mr. Bashir Hassan presented a talk on ‘The Kenya Insurance Market and its policies’ and noted that: - “People have already lost confidence in insurance, as insurance is increasingly becoming incapable as a risk management method and hence risk and despair could soon flourish” 1 It is therefore in the best interest of every Kenyan to see that strategies in the form of legislative framework should be put in place so that growth is achieved. The aim of the insurance legislation and regulatory process is to deter the unscrupulous without hindering forward thinking dynamic companies. In a bid to look for the effects of the current industry legislative framework on the industry performance, I undertook this Research Study On the Development and current Insurance Industry paradigms that need reform.

0.2 STATEMENT OF THE RESEARCH PROBLEM Has the present insurance legislative framework contributed to the decline of insurance sector performance?

The problems facing the present insurance legislative framework attributed to it’s inadequacy will be looked upon. The problem is well illustrated as follows: -

“The criticism of regulators has been that they arrive when the war is over and then shoot the wounded.”

William Seidman2 The research problem is looked upon in regard with the existing statutes dealing with insurance, in relation to the performance of insurance companies in Kenya and in comparison with the world trends to justify the need for reforming the existing insurance legislation.

0.3 JUSTIFICATION OF THE STUDY

This research seeks to give a clear picture on the situation facing the insurance industry in Kenya.

The insurance industries have developed tremendously from the colonial times to the present based on the English procedure. Although, the economy of Kenya has not provided the best environment currently for growth, many any of the problems facing the insurance industry today are blamed on legal contains.

It is not justifiable to rely on old statutes that do not allow the insurance sector to grow, but it is not only justifiable but also prudent to embrace world trends and transform the sector by looking at the regulatory and facilitation of the industry.

In due regard therefore this research seeks to look at the problems facing the insurance industry viz. the legislative framework and formulate strategies that will provide for a good foundation to regulate the players in the industry and authorities with greater mandates to develop the sector by offering proper legislative platforms.

0.4 RESEARCH OBJECTIVES

This research paper seek to examine the following objectives: -

1.	To Trace the history and development of the insurance industry in Kenya and it’s implications today. 2.	To examine the existing insurance legislation in Kenya and give a critical appraisal of the salient features and the working of the Insurance Act. 3.	To examine the problems and challenges facing the insurance industry attributed to the failure of the existing statutes and legal framework to adequately facilitate and regulate the industry. 4.	To propose practical and adequate measures to be undertaken based on the study and comparative study to reform the existing legislation in Kenya.

0.5 SCOPE AND LIMITATION OF THE RESEARCH The area of study is limited to the legislative framework in Kenya. Due to the wide nature of the topic the research paper will limit and focus on issues that need reform.

0.6 HYPOTHESIS Legislation is one of the causes of failures of insurance industry in Kenya and reforms are inevitable with the trends of the industry.

0.7 METHODOLOGY The primary data was collected through interviews, observations and questionnaires. The secondary data collected from articles and reports published by the Commissioner of insurance, books from libraries and also newspapers and magazines. The interviews targeted professionals in the insurance industry in Kenya and the data published in articles and reports by the Commissioner of insurance and also books written by players in the insurance industry. The internet was used to get articles for comparative study of insurance law and find out the world trends.

1.0 CHAPTER ONE 1.0 DEVELOPMENT OF INSURANCE LAW IN KENYA The development of modern insurance law in Kenya can be traced to the colonial1 times, insurance then developed due to the necessity of traders to reduce their losses that arose due to unforeseen circumstances relating to maritime transport and the perils related to carriage by sea. When Kenya was declared a British protectorate in 1896 the Britons came to Kenya to trade, they transported their goods by sea and these raised the risk of loss during transportation, they sort to avoid the risk of losing their goods and therefore opted to have English laws to be applied to protect their interest. Marine insurance therefore developed first in Kenya by extension of English laws and in 1909 it became received law and the Insurance Act of England 1906 became applicable as law in Kenya governing marine insurance in 1822. While the number of British settlers increased, the need for insurance companies increased and consequently British insurance companies came to Kenya to cater for the need for Insurance protection for homes, property and life. The London and Lancaster Insurance Co. in 1904 appointed a trader in Kenya as agents for fire policies. The Royal Exchange Association Corporation in 1922 and the Commercial Union Association Company opened an office in Kenya in 1929. These companies paved way for the development of insurance industry in Kenya and the colonial government encouraged these insurance companies to operate in Kenya in order to lure settlers and investors to come to Kenya. In 1930 the first insurance company to be incorporated was Pioneer Assurance Company followed by Jubilee in 1937 and Pan African in 1947. The modern insurance law that exist in Kenya today owes its existence to the colonialist however primitive insurance existed prior to colonization. Even though the primitive Insurance that existed prior to the colonial government has no nexus to today’s insurance law its historical value is important in as much as its explains our cultural background and attitudes towards modern insurance. Studies on the primitive insurance are lacking mainly, because African history for a long time considered by the colonialist as having little value that it was not worth reconstructing and also because studies of Africa were mainly carried out by European bourgeois anthropologist whose philosophical outlook on ‘primitive societies” caused them to separate African society from its historical context. The ‘primitive’ insurance that existed prior to the colonial rule was characterized to what today termed in insurance as captives whereby individual depend on organization in these case being their societies, families and clans to ameliorate their losses. The Kalenjins who were pastrolist for instance in case of a calamity like a disease striking their distance relatives they offered to indemnify them by giving them cattle on a reciprocal basis. It should however be noted that the Africans did not provide their kind of ‘Insurance’ with a business mind but rather on a humanitarian and comradeship motive among the clans and families to enable an harmonious co-existence and also most importantly to eliminate the diverse effects and repercussions that arise after a disaster has struck among the families. The cultural background from the primitive insurance has manifested itself today in modern insurance through the attitude towards risk and risk awareness in Kenya. Despite the impact of Education that have changed the customary traditional law and it influence on the life of people today, they still know and maintain their cultural values especially through the various native languages spoken today. This cultural adherence explains why many Africans for instance are reluctant to take life assurance policies as it amount according to many African traditions a bad omen to anticipate death and the speculation of activities after death are said to be better left to the existing people to discuss on inheritance and the aftermath of death than resort to insurance. Due to the nature of these research it is beyond its scope to discuss the full impact of pre-colonial and cultural values on insurance, however it is prudent to note that education level boast awareness and change attitudes towards risk and boast confidence of the people to take up insurance policies. The colonial era marked an important phase in the development of modern insurance in Kenya as it introduced and laid down the basis for insurance in Kenya. The introduction and applicability of English insurance law and procedures especially in maritime law led to the adherence of the Kenya legislative structures to the British systems. Kenya was therefore for a long time and still follows some English statutes. English statutes, which include the Marine Insurance Act of 1906 of United Kingdom designed to consolidate common law and marine insurance law in England, were applied in Kenya during the colonial period. During the colonial era the marine insurance was meant to benefit only the Europeans the Africans were not included. Even at international level, international law that governed the conduct of nations on the high seas was meant only for Europeans. Africans did not participate in its making and in many instances Africans were simply the victims. In accordance with the racial segregation present at that time, insurance was only for the Europeans and partly to the Asian communities and Africans were marginalized and never dealt directly with the insurance institution and therefore were generally ignorant of their exploiting functions. Like the ‘opium war’ against China in the ninetieth century to ensure that western capitalist would make profit while the Chinese were turned into dope addicts, so was colonization in Kenya which was to ensure that Britons made profits while the Africans were turned into slaves and poor people. Due to racial segregation the colonial government enacted in 1945, the African Life Assurance Control Ordinance, which was aimed at restricting the participation of Africans in Life Assurance and provided in section 3, that: - “No person shall effect any life assurance with an African unless the form of proposal and any condition affecting the policy line first been approved by the native commissioner of the African Affairs.”2 The effect of that section made it almost impossible for Africans to obtain insurance covers because of the bureaucracy that was involved and imposed by the Act. The sanctions created by the Act restricted the issue of insurance policy to an African and if any African needed an insurance policy they would be subjected to scrutiny by the Native Commissioner whose duty was to ensure that the Africans did not compete or in any way benefit from the settlers. It was issued in a few cases as a reward for ‘outstanding’ loyalty or where benefit is not expected to be derived by the Africans. Insurance was therefore restricted to the minority population of Europeans and a few Asians hindering its development. The first statute enacted in Kenya to regulate insurance was the Insurance Act 1967 and another in 1962 based on English legislation. These legislation were replicas of English statutes and in many ways myopic in nature and did not cover all the players in the industry. The independence of Kenya marked a very significant change to the development of the insurance industry in Kenya3. Unlike the colonial government, the independence government shifted its policies to open up for growth of the sector to the Africans and encouraged investments. The policies taken to encourage growth and development are evidenced by the formulation of Sessional Paper number 10 of 1967, which formulated strategies for economical growth. Significant to the Insurance Industry was the decision by the government to set a state corporation to carry or insurance business along the private ones and compete in the market, pursuant to the Sessional paper. This policy led to the establishment of the Kenya National Assurance and Kenya Re-insurance Corporation. The Kenya National Assurance, which developed to be the largest insurance company in Kenya, provided insurance covers for many unfortunately due to mismanagement it collapsed and no longer operational. The government also set up (ICDC) Industrial and Commercial Development Corporation through which it offered insurance partners life with foreign investors. The government also took up the control and regulation of the insurance industry, this is because of the insurance sectors plays an importance role in the national economy as it provides for the accumulation of funds through the pooling system and the encouragement of saving and also for the participation in the investment of the funds for the public interest. The absence of a Kenyan legislation governing marine insurance in Kenya led to the enactment of the Marine Insurance Act. The Act enacted was introduced as a Marine Insurance Bill by the then Attorney General Charles Njonjo on 28th May, 1968 and had the objective to provide a comprehensive law governing marine insurance and to repeal the United Kingdom Act and its application. Unfortunately the Act enacted by parliament was a mere adoption of the 1906 Marine Insurance Act word by word. The Act has continued to govern and regulate the Marine Insurance up to today despite the fact that even judges in the United Kingdom have discarded some parts and declared it contradictory, strange, absurd and archaic. In 1984 a new phase of development on regulation was marked by the Insurance Bill, which was published and provided for three years for companies to comply with the various provisions of the Act. The Act was subsequently enacted in 1986 and it became law. The Insurance Act enacted in 1986 and cited as the Insurance Act Cap 487 provided a more comprehensive regulation aimed at regulating all the players in the Insurance Industry. The Act has provided development and growth of the insurance sector and detail study on the provisions of the Act have been discussed in Chapter two. There have been various amendments to the insurance Act Cap 487 notably from the powers exercised by the minister of Finance through the various Finance Act and the annual Budged speeches. The enactment of the various legislation from the colonial era to post independence period have therefore had a direct impact on the development of the insurance sector in Kenya. The historical development of insurance in the past is only useful either in as much on its helps as to map out strategies for the future or if it helps us to avoid past mistakes. The insurance sector significant changes over the years are attributed to the legislative structures and a further improvement and development of the insurance industry require legislative backing. The Reliance of the British system have created a dependence that ought to be done away with and eliminate the stigma related to the past legislation. The legislative structures regulating the insurance sector that have become outdated and obsolete should be done away with to pave way for new laws to revitalise the insurance industry and embrace world trends to ensure that the insurance industry prospers.

CHAPTER TWO 2.0 A CRITICAL APPRAISAL OF THE INSURANCE ACT, CHAPTER 487. LAWS OF KENYA 2.I INTRODUCTION The Insurance Act1 Cap 487 (1984) was enacted following the need to consolidate and provide for a comprehensive insurance legislation aimed at regulating all the players in the industry. In 1984 the Insurance Bill was published and subsequently become law in 1986 and commenced its operation in 1987. Companies were given three years to comply with the various provisions of the Act. The New Act repealed the Insurance Ordinance of 1960 and Kenya Reinsurance Act 1970. In its introduction it is said to be An Act of parliament to amend and consolidate the law relating to Insurance and to regulate the business of Insurance and for connected purposes. The Insurance Act is arranged into XXI parts with 203 sections as follows: - Parts								Sections I Preliminary							1 – 2 II Appointment, Powers and duties of the Commissioner of Insurance				3 – 18

III Registration of Insurers					19 – 31

IV Deposits							32 – 40

Parts                                                                              Sections V Assets, Liabilities, solvency margins and Investments						41 – 51

VI Accounts, Balance sheets, audit and Actuarial Investigations						52 – 67

VII Management and Expenses				68 – 72

VIII rates, Policy, Terms and Settlement			73 – 106

IX Assignments, Mortgages and Nominations		107 – 111

X Claims on small life policies				112

XI Transfers and Amalgamations				113 – 118

XII Insolvency and winding up				119 – 128

XIII The Kenya Reinsurance corporation		          129 – 144

XIV Mandatory Reinsurance cession			145 – 149 XV Intermediaries, Risk Managers, Loss Assessors, Loss Adjusters, Insurance surveyors And Claim settling Agents				150 – 156

XVI The Insurance Advisory Board of Kenya 		157 – 163

XVII Legal Proceedings and Appeals			168 – 178

XIX Ministers Power					179 – 181

XX General provisions relating to registration and Certificates						182 – 197

XXI Supplementary provisions				198 – 203

2.2 THE COMMISSIONER OF INSURANCE

The Insurance Act (1984) has managed to regulate the insurance industry to greater heights since it’s enactment. The office of the Commissioner of Insurance established by the Act under Section 3(1) provide for the appointment of a Commissioner by the Minister of Finance. The Commissioner has the duty to perform all duties assigned to him under the Act and these duties are particularly provided in section 5(1) which provide that the duties of the commissioner shall include: - -	The formulation and enforcement of standards in the conduct of the business of insurance with which a member of the insurance industry must comply.2 -	Directing Insurers and reinsures in the standardization of contracts of compulsory insurance. 3 -	Directing an insurer or reinsure, where he is satisfied that the wording of a particular contract of insurance issued by the insurer or reinsures is obscure or contain ambiguous terms or term and condition which are unfair or oppressive to the policy holders to clarify, simplify amend or delete the wording, terms or conditions as the case may be in respect of future contracts. 4 -	The approval of Tariffs and rates of Insurance in respect of any class or classes of insurance. 5 -	Side other duties as the Minister may assign to him.6 The Commissioner of Insurance powers and duties provided in section 5(1) of the Insurance Act are wide and far reaching to ensure that the Insurance industry is well regulated however the performance of the industry has been widely blamed on the inefficiency of the office of the Commissioner of Insurance. Among those who have

Criticised the office of the Commissioner of Insurance includes the insurers themselves through their umbrella body Association of Kenya Insurers (AK1), The Association of Insurance brokers (AIB) and the public at large. In an article by David Ngugi an executive Director of AK1 titled ‘some desired damages in the insurance Act’7 it has been proposed that the Insurance Act has become old and times have changed and it would be prudent therefore to review the Act to pave way for reforms to strategize the performance of the insurance industry in Kenya. Even though several proposals for reforms have been submitted in the past to the Ministry of Finance and to the Attorney General minimum changes have taken place and it is my desire to portray the Maladies of the Insurance Act that need to be reformed. General minimum changes have taken place and it is my desire to portray the maladies of the Insurance Act that need to be reformed. New challenges have emerged that can not be adequately addressed by the current Insurance Act, and therefore the reforms of the legislative structures especially as enshrined currently are inevitable in order to resuscitate the Insurance Industry in Kenya and to enable the Kenyan Insurance Industry to embrace world trends that would be beneficial to our system of laws.

Section 3 (1), which establishes the office of the Commissioner of Insurance should be reformed to become an Authority to regulate and develops the industry. An introduction of Insurance Services Authority to replace the office of the Commissioner of Insurance will greatly enhance the performance of the insurance industry in Kenya. The office of the commissioner of Insurance has proved inadequate in the regulation of the industry, as it is restricted to policing the industry without investing in the development of the industry. The Insurance services authority should be formulated to be similar with the emerging world trend of placing financial service and market supermarket under an Authority like the Financial Services Authority (FSA) of the United Kingdom and South Africa. The Mandates given to Authorities are far wide and have greater independence from their parent ministries. The success of the Kenya Revenue Authority8 and Capital Market Authority9 in Kenya have proved that Authorities are better placed to provide professional and well-coordinated development of a sector rather than having old fashion supervision by a department under a Ministry. The Insurance Services Authority approach would make structural and management changes and also provide legislation that will promote the medicine Adage – that prevention is better than cure. The preventive measures will include encouraging ‘whistle blowers’ to notify the authorities of possible irregularities in corporate activities. It will therefore have the responsibility of reducing financial crimes and promoting public understanding on the financial systems and tackling abuse amounting to white-collar crimes. The powers of the Commissioner provided under section 7 regarding power to call for information and production of books or papers by the Commissioner of Insurance should be enhanced to provide for regular checks in a periodical basis like the one governing the banking industry where the central Bank have the mandate to monitor the transactions of the bankers. Insurance companies in Kenya, which have collapsed in the past have been blamed on the failure of the Commissioner of Insurance to protect the public by close monitoring. It is the regulation that is analogous with the one criticized in America by William Siedman saying, “The criticism of regulators has been that they arrive when the war is over and then shoot the wounded.” The regulators in Kenya being the office of the Commissioner of Insurance have failed to protect the collapse of Insurance companies in Kenya and have been seen as they only show up to close the business completely. The losers most affected tend not only to be the insurers but mostly the public who are neither able to recover their premiums nor be compensated in claims when they are due. The Kenya National Assurance Company the giant parastatol had been blamed for poor management coupled by failure of the Commissioner to monitor its operations adequately. In the past Insurance companies that have been put under receivership have not been able to survive just like Kenya National Assurance, Stallion Insurance and Recently Lakestar Insurance Company. Insurance companies have been regulated by the Insurance Act as required under section 22 of the Act, which makes it mandatory for insurers to be incorporated under the companies Act.10 The companies which are meant to be more suitable for business in order to be subjected to more regulation to protect it from collapse and defrauding the public, have not been quit successful and blamed as a character of dubious repute and antecedents who interest the commercial world … and after rising to affluence by preying on the susceptibilities of a gullible public, finally retires from the scene in the blaze of sensational suicide or old Bailey’s trial” 11 Companies that have been put under receivership, including Insurance companies seem to have died as Justice Tunoi observed. “I think it is a notorious fact of which Judicial Notice may be taken that receivership in this country have tended to give the Kiss of death to many a business” 12 The “Villains” of company law have therefore affected insurance companies and measures should be taken that are more rigid to protect more the public from the collapse of Insurance Companies. The companies rules relating to Insurance companies are good in so far as it ensures the existence of the company in perpetuity however the rules and regulation relating to winding up and insolvency have not been adequate in Insurance companies as the nature of the Insurance Companies like the banks operate with a lot of public funds which if misappropriated lead to a great injury and loss to the people with monetary interest invested.

2.3 PROTECTION OF THE POLICY HOLDERS BY THE INSURANCE ACT The Insurance Act provides for protection of policyholders mainly in two ways. First pre-registration regulations, and secondly on post registration regulation.

2.3.I PRE REGISTRATION REGULATIONS Pre-registration regulations are meant to ensure that companies with the right portfolio are allowed into the Insurance industry and to prevent rogue companies from the registration. The regulation of these kind are provided by the Insurance Act Part III as follows: - Only registered companies under the Act are allowed to carry Insurance business in Kenya and all the others restricted unless approved by the Commissioner of Insurance.12a Insurance companies are required to have at least one third of the controlling interests, whether in terms of shares, paid up share capital, or voting rights to be held by citizens of Kenya or a body corporate whose share are owned by citizens of Kenya or is wholly owned by the government13. The Rationale of the clause was to protect policyholders from foreigners who might take up insurance funds and go abroad. It is also included become of the historical background of Insurance in Kenya, which was dominated by foreigners. It was a measure to ‘Africanise’ the Insurance business and ensure that Kenyans are able to play a part in the Insurance Industry. The Limiting of controlling powers is not right or adequate enough and to rely on such a clause is a recipe for danger and therefore should be based on merit and more so control of investment rather than the controlling interest. It should however be retained, extend to which it prevent the flight of funds when disaster strikes. The Act has set a minimum capital requirement under section 23 which a company seeking for registration or received for registration. The pre-registration regulation intended to screen companies entering the Insurance business have provided measures that are not water tight. The main reason being that the political influence tends to have tampered with the system. The only screening person is the Commissioner of Insurance who can be easily influenced as an appointee; in these regard the policyholders are not adequately protected. A commission or an authority should carry out the registration process for companies applying for business licenses with greater responsibility than leaving a very important task for a one-man show. A commission or Authority composed of all the players and stakeholders in the industry with government representative from the Ministry of finance should be all involved in the registration of Insurance Companies.

2.3.2 THE POST REGISTRATION REGULATION The post registration regulations are meant to ensure that Insurance companies adhere to proper ways of doing business as required by the Insurance Act. After the registration of a company to conduct an Insurance business in Kenya, The Insurance Act provide for post registration regulation mainly as a supervisor of the Industry. The supervisors in these regard being mainly the office of Commission of Insurance. The commissioner has a duty to ensure that proper conduct is ensured by inspecting periodically the accounts of the company as provided in Part VI of the act. Part VI of the Act deals with accounts, Balance sheets, Audits and actuarial investigations and provide that insurers should: - -Provide separate accounts for each class of Insurance business. 14 -Prepare at the end of each year a revenue account, which include a balance sheet    profit and loss account and income and expenditure account. 15 -The accounting records must be kept correctly16 and audited annually.17 -Carry out Authorial investigation and valuations.18 -Prepare reports, provide further information and reports as may be required. 19 It is further provided under section 64 that the accounts and balance sheets should be sent to the registrar of companies under the companies Act and in section 67 of the Act the Commission of Insurance is vested with the power to apply to the court for winding up of an insurance company if it is found to be in violation of Part VI of the Act. Stallion Insurance Company Limited, which had been registered, was placed under statutory management pursuant to section 67 of the Act.

2.4 SOLVENCY MARGINS. To ensure that Insurance companies remain financially stable the Insurance Act provide in section 41 for Margins of Solvency. As at 31st December 2000 an Insurer carrying on long term Insurance business was required to have a solvency margin of not less than Ksh. 1 million. On the other hand an insurer carrying on general Insurance business had to maintain a solvency margin of not less than Kshs. 10 million or 15% of the previous years net premium income whichever is greater. An Insurer carrying on both long term and short term and general insurance is required to maintain separate solvency margins for each category of business.20 In 1999 one company under long-term business did not comply21 and in 2000 one company transacting general business did not comply. Solvency margins provided in section 41 have been criticized by Mr. Ngugi22 and proposed to strengthen the solvency margin, the margin of solvency for life Insurers should be 5% (minimum Ksh. 1 million) in excess of liabilities and assets must exceed liabilities by Ksh. 1 million. Specific guidelines on reservation of policies these world prevent collapse of Insurance companies that fall into financial problems. The solvency margins provide an indication of the performance of the industry. Just like in the banking industry, Insurance companies are expected to keep a certain amount in order to ensure that they can pay up their liabilities. Even though the solvency margin have given indications the commissioner of Insurance acting as the regulator has failed in many instances to save the insurance company from collapsing.

Insurance companies need strong financial base and in these regard it should be provided with a regular inspection rather than wait to the end of the year for financial reports. To safeguard the Insurance funds the Insurance Act provide for ways in which the insurance companies have to invest it’s accumulated funds. Section 32 of the Act provide for deposits, to ensue that a company has the funds specified by the Act, deposited with the central bank of Kenya in Kenya government securities. The deposits required under section 32 are important to ensure that the company seeking registration has enough frauds that can be used as security as they are deposited in the central bank, and maintained to meet the minimum requirements.

PART VI OF THE ACT Part VI of the Act regarding Accounts, Balance sheets, Audits and Actuarial Investigation. This part was meant to accord transparency in the carrying out of Insurance business by the companies, however this has have been undermined in many ways. The Insurance Companies have managed to cleverly conceal their transactions in their accounts reports. The legislation regulating the Insurance Industry does not require Insurance companies to publish their annual account reports to the public through the News media. Therefore the public hardly knows the financial position of Insurance companies. A person seeking to know the financial position of an insurance company will hardly get to know it fast and easily, he/she will have to go to registrar of companies and that will take a long time probably a month. Insurers should be subjected to legislation like the banking industry where all banks are required to publish their annual accounts results report for the public to know. The absence of express legislation requiring Insurance companies to make it known to the public of their financial position, seem to give way for interpretation of company law principle of constructive notice. Constructive notice presumes that anybody dealing with a company already knows their financial status. The Accounting procedures regarding Insurance companies should also be reviewed in line with International standards and it would be prudent to introduce International Accounting standards (IAS) in the Insurance Industry. The prospects of introduction of IAS has however, caused anxiety in the sector as the Commissioner of Insurance 23 lamented. The new policy would require Insurance firms to include land and buildings in their balance sheets.

The structure of Insurance companies need to be changed to ensure prudent measures are enforced in the market. This would require Chief Executives in Insurance firms to be included in decision-making and to ensure that there is accountability and transparency. There should also include of minimum of 5 board members who are independent directors to ensure transparency, accountability and good leadership ethics. The Auditing of Insurance companies should be regulated also not only to require a certificate to ensure compliance, but also to ensure that an accounting officer who carry out internal auditing is to be answerable to the regulating body and to the policy holders. The regulating body should employ a qualified accountant with approval of the Insurance company and its shareholders, the internal auditor should be given security of tenure to ensure that the removal of such an internal auditor can only be done with approval of the regulating body will enhance transparency and accountability. These would also reduce the susceptibility of connivance between the internal auditors and firms in order to safeguard their job security. To ensure that there are checks and balances in the accounting procedures and analysis there should also be a statutory mandate to subject the accounts report to external auditors to verify and approve the account and thereafter to be made public by publishing in the daily newspapers. Insurers have been against the publishing of their accounting results in the public medias as it might compromise their business, but for the public good which should override the interest of the individual firms, the publication of the accounting results would help the public on how to deal with the Insurance companies in making, informed decisions.

2.5 ACTUARIAL INVESTIGATIONS Actuarial investigation forms the basis and the lifeline of the insurance business. It should be noted that Actuarial investigation carried on are based on Actuarial science. Actuarial science is a complex mathematical subject that has been developed over the years. The origin of Actuarial science lie in the seventeenth century. During the period commercial needs gave rise to transactions involving marine insurance, which was common, and the Algebra of life annuities came into existence. 24 17th century a European writer on Arithmetic’s such as Simon Stevin and Jan Trenchant propounded actuarial principles. The historical development of Actuarial science have propelled the Insurance business to the present state and among the notable development have involved statutory development. A statutory system of actuarial supervision of life Insurance began with Massachusetts’s legislative session of 1858 and the life assurance companies Act of 1870 of UK. Kenya seem to have lagged behind in the development of Actuarial science and have relied heavily on experts from Britain to carry out Actuarial investigation in Kenya. The lack of development of indigenous specialist in the subject of actuarial science has contributed adversely to the way insurance business is being carried out in Kenya. The statutory regulation regarding actuarial investigation is limited and merely set in a manner not based in local standards but rely on foreign statutes of the U.K. The insurance Act provides in section 2(1) that an actuary means a fellow of the Institute of Actuaries in England or of the Faculty of Actuaries.

Deriving from the definition, show lack of local expertise in the field to be regarded the ‘institute of Actuaries in Kenya. In this respect Kenya should encourage the development of an institute of actuaries in Kenya rather than depend on foreign bodies, which were not meant to cater for the needs of Kenyans. With the resources of Kenya an establishment of such a professional body is not really an uphill task but rather show the neglect on the part of the regulating body to set up a local institute to cater for the duty of Actuarial investigations. The Insurance Act provide for Actuarial Investigation to be carried out in section 57. The Act require Actuarial Investigations and reports prepared as required under the Insurance (miscellaneous amendment) Act 1994, that valuation be carried out to meet the minimum standard set out under section 58 of the Insurance Act and the seventh schedule to regulation is of the Insurance Act. The lack of actuarist in Kenya has been also attributed to the nature of the training required. Actuarial science being a complex mathematical subject involve high level training over a long period, it takes more than 7 years to train an actuarist. The training being expensive and not provided in Kenya has not attracted many Kenyans to the field. The few who have managed to train successfully opt to work abroad because of the better pay that is available there. A look at Insurance Industry employment statistics 25 indicate that only two actuarist have been employed directly by Insurance firms in Kenya that is by Jubilee Insurance company and Kenindia Insurance company. Just like doctors whose expertises are required in the medical field are actuarists required in the Insurance field. It is therefore not adequate to have only two out of forty insurance companies directly employing actuarist.

It is difficult for an ordinary man or a person not trained in the actuarial profession to understand actuarial ideas such as the Makeham’s formula. 26 To enable Actuarial Investigation to be conducted properly and the results to be properly interpreted and implemented require specialists. In these regard therefore, the development of the Insurance Industry will be greatly be boosted with the employment of more experts by making it a statutory requirement that each insurance company be subjected to actuarial investigation with proper guideline than the existing ones to ensure that the management of insurance companies and it’s policies are based on informed decisions from actuarists.

2.7 INVESTMENTS Regarding Investments under section 50 of the Act. It has been argued by most insurers that the restrictions placed on investments, which are aimed at securing, and protecting the policyholders from losses are too restrictive. The prohibition of Insurance companies to open up foreign investment has not enabled them to compete well with the banking industry. It would be appropriate to review the regulation with a view of liberalisation and reduce the controls of investments. An analysis of the investment by insurance industry portrays that the largest share of investment are in government securities. This is attributed to the regulatory requirements of the insurance Act to protect the interest of the policyholders and as well to benefit from the pool of funds collected. It is unfortunate to note that the industry seem to no longer invest in local authorities. Local authorities play an important role and impact directly to the insurance industry as it help the people to protect themselves and provide essential services like protection against fire by the five brigade, garbage collection and offering Education. Insurance involve risks rather based on the environment and if the local authorities neglect to provide the essential service like garbage collection and fire extinguishing service the results in higher incidences of accidents caused by fire which when insured the insurance has to pay, road not well maintained cause accidents which insurance has to pay, as well as when fire strikes the insurers tend to pay for it also. To investment with the local authorities will ensure that local authorities perform their duties, will greatly enhance the performance of insurance companies. However, because investments are supposed to pay and most notably is that investment having no element of charity, have caused the decline of investment in the local authorities sector. Statutory requirements should be put in place to encourage insurers to invest in local authorities and provide for tax incentives. This will enable the insurance industry to benefits from their investments from local authorities.

2.8 MANAGEMENT AND EXPENSES Part VII of the Insurance Act provide for management and expenses. These section aim of regulating insurance companies with regard to how they manage their financial activities and expenses with the aim of safeguarding the interest of the policyholders from abuse of power and the management of financial activities by managers, directors and other accounting officers. Section 68 (2) of the Act provide for the post Principal Officer and shall be responsible for the general control, direction supervision of the general insurance business and shall represent the insurer for the purposes of the Act. In order to ensure qualified persons are appointed as principal officers the act stimulate that the principal officer shall be a resident of Kenya and shall require the approval of the Commissioner of Insurance to ensure that the person is well qualified and have the capabilities to carry out and run the insurance business with professionalism. Directors, managers and other employers are restricted in there remunerations.27 Management expenses are limited in section 70 of the act which provide that: ‘No insurer shall spend money, in any financial year as expenses of management an account in excess of the prescribed limits.’ In practice the limiting of Insurance companies in their expenditure have had adverse effects. The current prescribed limit of 15.5% of the direct gross written premium have been viewed on low, rigid and too limiting to adhere to it. Most insurance companies have found it difficult to comply with the maximum permitted expenditure levels as set out under section 70 of the Insurance Act and the tenth schedule to Regulation 21 of the Insurance Act.

The Growing costs have been attributed to expenses growing at a higher rate than that of premiums and there are indications as noted by the Commissioner of Insurance that some companies were paying commissions above the maximum limits as set out under section 73 of the Insurance Act and the Eleventh schedule to regulation 22 of the Insurance Act. In these regard therefore it would be appropriate to do away with the restriction on expenses and look for other ways of controlling the Insurance industry by close statutory regulation based on prudent managerial and auditing skills and the accounting of solvency margins to control the performance of insurance companies.

2.9 REINSURANCE BUSINESS IN KENYA The Kenya Reinsurance Corporation and the East African Reinsurance Company mainly carry out reinsurance business in Kenya, Insurance companies also arrange for reinsurance by foreign companies through treaty reinsurance that require the approval of the commissioner of Insurance. 28 The Insurance Act provides in part XIII the establishment of Kenya Reinsurance Corporation. The corporation is the successor to the Kenya Reinsurance Corporation Act (now repealed)29. The Act provide for mandatory reinsurance cession in Section 145, it stipulate that subject to the act all insurers shall reinsure with the Kenya Reinsurance Corporation. The Insurance Act requires all insurers to submit their reinsurance arrangements to the Commissioner for approval. 30 Reinsurance premium tax rate was changed from 4% to 5% compulsory treaty cession to Kenya Reinsurance Corporation was frozen at 18% up to 31st December 2004, rescinding previous Notice, which had provided for a phase out of the mandatory cession by 2002. The Kenya Reinsurance corporation have always been protected and given priority in reinsurance in Kenya, plans to privatise the Kenya Reinsurance corporation are underway inline with government policy to embrace the concept of economic liberalisation. Economic liberalisation advocates the greatest possible use of markets and forces of competition to co-ordinate economic activities. A significant component of economic liberalisations is the divestment of government interest in business enterprises thus privatisation. Privatisation of the Kenya Reinsurance Corporation would involve the process of transferring its ownership from the government to the private sector. Privatisation has become a global trend based on recognition that the distinctive competence of government is not the production of goods and services and that the business concern is the ideal organization for effective production of goods and services. Due to government protection and statutory requirement under section 145 of the insurance Act, which require that insurance companies have a mandatory cession with the Kenya Reinsurance Corporation. It has been argued by many industry players that there is no longer need to continue protecting Kenya Reinsurance Corporation since it could stand on its own and to create a fair play for competition with local reinsured or insurers incorporated in Kenya. In these respect therefore section 145 of the Insurance act should be deleted together will all the provision related to it. The Kenya Reinsurance Corporation should also be privatised in a transparent manner in order to relieve it the burden of government ownership and replace it with new set of shareholders. Due to its colorsum funds endowment with the Kenya Reinsurance Corporation from accumulated of funds over the years it should be valued by, an ad hoc committee to valuate and look for suitable prospecting investors to take up the corporation.

2.10 REGULATION OF PLAYERS IN THE INSURANCE INDUSTRY BY THE INSURANCE ACT. The Insurance industry have many players who operate directly or indirectly and therefore it is important to relate their conduct in relation to regulation by the Insurance Act. The Insurance Act does not recognise some important players in the industry directly and have been blamed on the inefficiency of these bodies, which affect the insurance industry directly. Industry bodies like the association of Kenya Insurers (AKI). The AKI is a trade Association for Insurance companies in Kenya. Originally known as Association for East Africa Insurers, AKI came into existence in 1987. AKI membership is open to any Insurance Company registered and licensed under the Insurance Act to transact business in Kenya. The role of AKI is : - -	To protect, promote and advice the common interest of its members. -	Promote agreements and corporation among its members. -	Provide technical and statistical services to its members. 31 -	Promote knowledge and clear understanding of insurance to the public. -	Represent its member’s interest to the government and the regulatory body. -	Monitor and propose regulations and legislation. -	Maintain standard with the industry by use of code of conduct. Owing to the important role the AKI is playing in the industry. It should be given legal recognition and its duties and obligations be a statutory requirement this will ensure that the insurance industry operate effectively. It would be prudent to incorporate some of the positive development by the Association of British Insurers (ABI) 32

Which looks after the industry by regularly publishing guidelines to the standards required when transacting business between insurer, intermediate and policyholders. Notably the Statement of General Insurance Practice protects policyholders from any unfair treatment brought by the terms of the Insurance policy. To give it the force of law, the rules and regulation will be made binding to its members and be mandatory to all the members.33 The AKI in Kenya have performed a duty of giving an enabling environment for the insurers in Kenya however it has been on numerous occasion been criticised especially by the lawyers and their umbrella body, law society of Kenya (LSK) as protecting only the interest of insurers. LSK has accused AKI has acting as a cartel to defraud the public by unscrupulous means like unjustifiable increase of premiums and aiding and abetting the crimes of insurers in facing to pay policy holders money owed to them. The AKI have on numerous occasion issued guidelines to its members, advocates were angered by the issuance by AKI of the guideline of the two cheque system. 34 In order to prevent the misuse and abuse of the powers of AKI, it should therefore be subjected to statutory regulation and detail guideline to avoid it acting as a cartel. The role of AKI should be emphasized as a way of self-regulatory system and in order to be a whistle blower to downplay unfair competition and promote the insurance industry. Apart from the AKI there are also other members of the insurance industry comprising of service providers and intermediaries that need to have statutory regulation framework formulated. These include loss assessor’s, loss adjustors, claim settling agents insurance surveyors risk managers, insurance brokers and insurance Agents. Under the Insurance Act presently these service providers and intermediaries are regulated by the Act through its licensing procedures that require registration and renewal of license annually. These licensing procedure have been cited as inadequate to control and develop these service providers and intermediaries therefore there is need of legislator to address on their supervisor and regulatory process.

CHAPTER THREE OTHER STATUTES REGULATING INSURANCE INDUSTRY IN KENYA 1.	The Marine Insurance Act Chapter 390 laws of Kenya. 2.	The Insurance Motor Vehicle (Third Party Risks) Act chapter 405 Laws of Kenya. 3.	The Retirement Benefits Act 1997. 3.1 THE MARINE INSURANCE ACT CHAPTER 390 LAWS OF KENYA Marine Insurance is regulated in Kenya by the Marine Insurance Act Chapter 390 laws of Kenya. The Act commenced its operation on 22nd November 1968. Prior to its enactment Marine Insurance in Kenya was governed by the Marine Insurance Act 1906 of the UK. In a bid to replace the Marine Insurance Act 1906 of the U.K., the then Attorney General Charles Njonjo on 28th May, 1968 presented a memorandum of objectives and reason to parliament citing the need to replace the Marine Insurance Act 1906 of UK by an Act of Kenyan parliament.1 The Act enacted by parliament then was a replica of the Marine Insurance Act 1906 of UK any omission, alternative or amendment include to the statute. Since it’s enactment the Marine Insurance Act has not undergone any major change to cope up with the changing trends. The Marine Insurance Act has therefore become old and outdated. Mr. P.M. Wambua in his paper presented to the Attorney General on the unsatisfactory state of Maritime law in Kenya cites that the Kenya Maritime law which Insurance is included has become ‘Archaic branch of law in desperate need for reform.’ 2 The government of Kenya in a bid to reform the state of Maritime law has formed a commission headed by P.M. Wambua as the chairman of the Commission. The commission has not yet released its report and in these chapters I would look at the areas that need reform affecting Marine Insurance Act and other statutes incidental to the Insurance of Maritime transport. The Marine Insurance Act being a replica of the Marine Insurance Act 1906 of the UK have been faced with the same problems. The act although at its enactment was crafted well it has not been able to survive the test of time with the current mordenization and changing in ways in which business is carried on. In the UK the Marine Insurance Act 1906 is no longer applicable in its original form. It has undergone a lot of changes both in content and form and therefore it would be proper for Kenya to abandon the old Marine Insurance Act 1906 which is still applicable and cope up with new trends. Criticism that led to changes of the Marine Insurance Act 1906 can be illustrated by the expression of English Judges. Buller J. expressed discontent with the policy wording and said; “Without commenting on the words of the policy it is sufficient to say a policy of assurance has at all times been considered in courts of law an absurd and incoherent.” 3 Buller J. comments was in relation of the Marine Insurance Act 1906, on old SG (ships and goods) policy form as appeared in the first schedule of the Marine Insurance Act. The old SG policy dates back as far as 1778 and a revision was viewed as necessary to adopt the changing needs of the market. The old policy form was finally, abolished in the UK 1982 when a new policy MAR was adopted. 4

In 1936 Scott L J stated: “Archaic words of our ancient form of marine policy afford little guidance in the way of description or explanation as the circumstances with the insurer agrees a loss from which he has to pay” 5 In 1937 Lord Atkin also held tht the ‘old Sg form as strange, absurd, incoherent, clumsy, absolete, incomprehensible and toxious document.’ 6 The marine insurance Act 1906 of the UK has therefore undergone numerous changes in UK unlike in Kenya where the old Act is still instant. On the International area United Nations Convention On Trade and Development (UNCTAD) have been playig apivotal role in facilitating the development of new legislation to suit the modern trends and advocating for abadonment of old status that have become out dated. Marine Insurance was on the Agenda of UNTAD on it’s first session in 1964 the conference Adopted recommendation A IV 25 that: ‘Competent International Organization should examine the adaptation of uniform clauses for Marine Insurance.’ UNCTAD on it’s report dated 25th November 1978 have also inline with the English Judges expressed their dissatisfaction on the English policy form of Marine Insurance and stated that:- ‘Immortalization of an antiquated and obscurely worded document as being immune from any improvement is excessive and unnecessary due unyielding resistance to any change in the SG form unfolded. 7 Following the concern raised by UNCTAD and numerous English Judges the Marine Insurance Act 1906 underwent numerous changes among them was the lauching of the New NAR policy to replace the old SG policy form. UNCTAD have also been instrumental in debates in achieving a set of International accepted Insurance forms for use in the world market. In accordance with world tends therefore citing the inadequacy of the Marine Insurance Act 1906 of UK Act adapted in Kenya is still applicable today, it would be prudent to reform the Act in order to compete well in the world market and to keep at par with the Marine Insurance. Apart from the Marine Insurance Act applicable in Kenya there is also the judicature Act which affects directly the procedures of the Kenya courts of adimirality Jurisdiction. Marine Insurance cases are dealt with by the High court of Kenya in exercising its Adurality jurisdiction. It is absurd to note that the flight court of Kenya in exercising its admirality Jurisdiction apply English procedures as required by the Judicature Act. Chapter 8 Laws of kenya. The judicature Act provide in sec 4(1) that:- ‘The High court shall be a court of admiralty and shall exercise admiralty, jurisdiction in all matters arising on the high sea or in territorial waters or upon any label or navigable inland water in Kenya. Section 4(2) goes further and provide that: The admirality jurisdiction of the High Court shall be exercised in accordance with the same procedures as in England and be exercised in conformity with International law and comity of nations.’ The historical development of the English system in Kenya, brought about from the colonial era still have it’s efforts entrenched in our statutes today. The supreme court of Kenya as a colonial court of Admiralty was subject to the Admiralty jurisdiction of the High Court of England. With the end of colonisation, independent Kenya Marked a new beginning and should not be bound by it’s past in these relation therefore the judicature Act should be amended particularly section 4(2) (a) should be abolished to pave way for Kenyan law procedures to be followed. The inappropriate nature of application of English procedures result in undermining the Kenyan procedures. In the case of the owner of motor vessel ‘The lillian and Caltex Oil Kenya Ltd. 9 The High court was moved in a notice of motion under R.S.C. order 75 and section 4 of the judicature Act. The Judge observed in the obiter that Kenya as a sovereign and independent state should follow its rules of procedures not those of united Kingdom as following foreign rules of procedure may not be in the best national interest of Kenya and may injure Kenya maritime trade. The judges added in their ruling that a certificate copy of the ruling be placed before the attorney General with a view of seeking the attention of parliament in amending section 4 of the Judicature Act. Marine Insurance in Kenya can not be dealt exhaustively without looking at the broader subject of the law of admirality. The law of admirality can be divided into four main groups first law concerned with safety, secondly laws concerned with prevention of marine pollution, thirdly the law concerned with liability consequential damage and compensation, and fourthly laws dealing with facilitation of marine transport like tonnage, measurements, salvage and unlawful act agent shifting. Maritime law in Kenya need a lot of changes and marine insurance is just but a section which need reform. On the International perspective P.M. Wambua10 observed that Kenya had ratified only 19 International convention out of about 40 convention, and most of the ratified convention have not been fully implicated, because convention can not be applied in a national jurisdiction unless not be applied in a national jurisdiction unless it has been incorporated in the national laws. Most of these convention are under the auspices of the International Maritime Organization (IMO) and the aim of ensuring that existing instruments keep pace with changes in the shipping industry. Maritime law in Kenya is still tied to the old Hague rules while most developing countries have shifted to Hambury regime which offer a move comprehensive code protecting the Cargo Owner and the carrier. Professor John F Wilson11 have classified the International situation with regard to constraits of carriage of goods by sea into four:  The original flague rules, 12 The flague/visby amendment and the flamburg code, while the fourth category is of nations with non of the conventions. In order for Kenya to cope with world trends and facilitate trade, our laws should be reviewed in like with the flamlarge code as it offers more protection to the cargo owner agars the carrier. The laws and the regulatory framework governing marine Insurance in Kenya is in dire need of reform to pave way for world trend and facilitate trade. The Marine Insurance Act Cap 380 should therefore be subjected to complete overhaul as it has become outdated. The Judicature Act particularly section 4 should be deleted to pave way for the applicability of Kenyan procedure. Maritimes laws should also be reviewed to include the establishment of Maritime Regulatory authority to regulate Maritime trade, Merchant shipping practice and the establishment of supplementary bodies. A special admirality court should also be set up to deal with Admirality, cases.

3.2	THE INSURANCE MOTOR VEHICLES (THIRD PARTY RISKS) ACT CHAPTER 405 LAWS OF KENYA The enactment of The Insurance Motor vehicle (Third Party Rot) Act made it Mandatory to insure the third party, rather of a motor vehicle owner to operate. Motorist in Kenya are therefore required to take compulsory Insurance to cover third party bodily injury a provided by the insurance Motor Vehicle (Third Party Risk) Act Cap 405. The motorist do not have a choice about whether to buy a policy or retain the risk, if they do not comply with the law, they are apprehended by the Traffic police. The demand for motor vehicle Insurance is suppose to be fixed to the number of Motor vehicle on the roads however these have not been the case and it is estimated that 50% of motor vehicles in Kenya are not insured. 13 The reason why, many vehicles are not insured in Kenyan can be mainly be blamed on first the regulatory framework, secondly the state of the economy and thirdly and most instruging is the level of fraud involve in the sector. The performance of Insurance in the Motor vehicle sector have not been profitable and this has mainly been attributed to massive fraud in the sector. Although the trouble with the motor vehicle sector is not new. In 1986 there was an appointment of a commission of inquiry into motor vehicle insurance and until now the sector remain the most problematic. 14 The regulatory framework governing motor vehicle Insurance are said to be inadequate to curb the problems surrounding the sector. To formulate a regulatory framework based on the Swedish model would help the sector tremedously. The Swedish model 15 under which the National association of Insurers share a data back of all registered vehicles with the motor vehicle registry.

Comparison with insured vehicles would pick out vehicles that are not insured. In Sweden the system helped the government to reduce the ratio of uninsured vehicles on the street from 6% to 1% in five years. The provision of an insurance vehicle policing system would be complemented by the establishment of an anti-insurance fraud unit. On the second issue, the state of the economy of Kenya affect directly the demand for insurance especially in the vehicles sector. The premiums set by the Insurance companies are said to be too high and the Matatu Welfare Association have blamed the insurers as acting as a cartel to raise the prices of premiums beyond the reach of many Kenyans. With 50% of Kenyans living under poverty means that many Kenyans struggle to produse the bare essentials before using what remains on luxuries such as Insurance. Insurance not being a priority in the hierarchy of need of a motorist in Kenya have led to decline of Insurance cover. The third issue which is the most intriguing is the level of corruption and fraud in the sector. The cline of the compulsory insurance has been attributed to the corruption of the Traffic Police to take bribes and allow uninsured vehicles to operate freely in direct violation of the law. The Insurance industry, believes that many claims particularly in the motor sector are fradulent and arise from technically uninsured vehicles. Statistics provided that the public motor vehicle sector pays Ksh. 2 billion in premium annually compared with over 6 billions in compensation claims per year, and underwriting executives attributes the underwriting loss to fraudulent policies and claims. The Freud in the industry has been in general by a well coordinated cartel enabling vehicles to operate on fake covers. In order to curb fraud in the motor vehicle sector proper legislative should be formulated to ensure that such cartels are removed and prevented from operating. Apart from reforming the insurance Act governing Motor vehicle, the police force implementing the laws should also be reformed as they are the perpetuators of corruption and condone the fraud in the sector. The attempt made by the 1986 presidential commission of inquiry were fruitless as they were never effected although it’s primary terms of reference were on the right way to help the industry. The terms of reference were to inquire into all aspects of Insurance Industry in particular relating to Insurance of motor vehicles and premium payable and secondly to find ways and means of limiting by legislative or otherwise the maximum compensation to be awarded for motor vehicles accidents. 16 The Insurance companies had complained that the courts were awarding high compensation claims to victims of accidents and thus crippling their business and the committee based on these arguments recommended that a two-tier non-fault scheme of reasonable ceiling of 1.5 million be adopted but the recommendation was not effected. Lawyers have also been victimized of defrauding the Insurance industry and the law society of Kenya.(LSK) have expressed concern that the problem is not based on lawyers but on the insurers for failing to meet their obligations. The dispute involving lawyers and insurers led to the two cheque system of payment which have been reflected by lawyers. It should therefore be noted that there is need to protect insurance companies from fraudulent claims and high court awards that make it impossible for them to operate profitably especially in motor accidents at the same time there is need to protect the legal profession from the whims of Insurance companies. Ensure that lawyers who take up cases on behalf of members of the public (clients) are accorded respect and remunerated reasonably. The most important aspect being the need to protect members of the public from unscrupulous lawyers and crooked insurance companies.

In order to adequately address and curb the problems faced by the Motor insurance sector therefore, the insurance Motor vehicle (Third party Risk) Act should therefore be reformed to protect adequately the insurers and the public among which is the adoptation of the Swedish model and adoption of two tier no fault scheme of a reasonably ceiling and eradication of corruption and fraud in the industry.

3.3 THE RETIREMENT BENEFIT ACT The Insurance industry in Kenya also depend on the performance of the retirement benefits as the back of the frauds are placed with Insurance companies as retirement benefits schemes. In recognising the important part played by Retirement benefits led to the introduction of detailed legislation alone hitherto there even relatively none.17 The detailed legislation provided by the Retirement Benefits Act 1997. The Gazettement on the 9th Oct. 2000 of the Retirement Benefits Regulations concluded the establishment of a new legal framework for Retirement benefits schemes, also included in the framework is the Retirement Benefits (Amendment) act 1988. The regulations were aimed at regulating the Retirement Benefits industry which is estaimated as having an asset base of Ksh. 130 billion making about 21% of Kenya’s G.D.P. The rationale behind the statutory controls as they relate to the investment of Retirement benefits scheme asses were based on failure of the industry players to provide adequate check and balances and thus could not be entirely entrusted to ensure the consumer receives a satisfactory service and therefore regulators usher to maintain a healthy level of competition as well as prostate the public interest. Previously before the enactment of the RB Act the legal framework for the industry had failed to prevent adequately the funds of the public. Due to lack of proper safeguards of the industry players there was massive misappropriation of scheme funds, dubious investment which led to losses and members were subjected to explanation denial and delays in payment of funds. Prior to the enactment of the RB Act the Income Tax department played an important role of regulating the set up and management for schemes. The statutory control dealt with issues especially relating to tax exemptions on contributions and benefits and also laying down rules on the design of these schemes. The provision are contained in the Income Tax Act include The Income Tax (Retirement Benefit) Rules 1994 Income Tax Act Sections 3(2)(c), 5(2)f, 8, 15(2)o, 16(2)d, 22 and 22B. Their have been numerous amendments in various Finance Bills and the Income Tax Act still regulate RB with revenue implications. Apart from the RB Act 1997 and the Income Tax Act 1997 there are also other statutory provision that regulate the management and investments of Retirement Benefits which include:- -	Statutory holder that are directly involved in the management and investment of RB funds include the Central Bank of Kenya, the Capital Market Authority and the Department of Insurance. -	Other statutory provision under the National Social Security Fund Act, Trustees act, Pensions act and the Local Authority Provident Fund also have some aspects pertaining to the set management and investment of RB scheme funds. -	The dynamics of the Regulatory regime provide for continuous promulgating laws that affect the RB Authority, this include the Finance bills and the powers of the Minister of Finance and also through the powers vested to the Commissioner of Insurance. Regulations under the Retirement Benefits Authority (RBA). The Retirement Benefits Authority (RBA) was set up following the enactment of the RB act in 1997 to meet the following stated objectives. -	To regulate and supervise the establishment and management of RB schemes. -	To promote the development of the RB Industry. -	To protect the investment and interest of members and sponsors of RB schemes. -	To advice the Minister of Finance on the policy to be followed with regard to the RB industry. The RBA seek to ensure transparency and professionalism in handling of all retirement funds, it is managed by a Board of Directors comprising private sector personalities with the requisite experience in various financial aspects together with representative from other financial sector regulators and the Ministry of Finance. The principal parties in the set up of RB schemes are members, sponsors and Trustees. The trustees appoint the key service providers i.e. custodian and A manager. Other proffessionals necessary to prepare reports and detailed documents for RB schemes are Administrators, actuaries, legal advisors and Auditors. The RBA framework was set up to safeguard RB schemes assets and has various check and balances to ensure transparency. Insurance Companies under the RBA The Insurance Companies under the RBA are referred as an “Approved Insurer” these are insurers registered under the Insurance Act. 18 and other insurers registered under the MA Act 19 or other written law. Insurance companies approved insurers are allowed to issue Guarranted Fund. 20 An insurer is required to set up a statutory fund called the “Retirement Benefits Fund” within the life fund which is subjected to a lot more requlation under the RB Act and the Insurance Act, which require the returns covering all RB schemes be sent to the Commission of Insurance and the approval of the RBA and the Commissioner of Income Tax are required before RB scheme are terminated, dissolved or round up. In as much as the RB regulations contained in the various Auto and the set up for Retirement Benefit Authority provide for detailed framework to safe RB schemes, there are still a few loopholes and challenges facing the RB schemes and reforms are necessary to cover the loopholes and ensure stability and transparency in the sector. The drafting of the RB Act did not anticipate the problems emerging today; the Association of Kenya Insurers (AKI) have reported that the RBA has acknowledged that there is a conflict of Interest in the event that a manager is appointed where the trustee have opted for a Guaranteed Fund. In order to resolve the problem amicably the section on Managers in relations to insurers as Approved insurers should be regulated by the Insurance Act. However, to safeguard the Interest of trustees they should be left to choose whether the scheme administrator to the Approved insurer or contract a new poverty for the purpose as manager, however it would not be practical to appoint a manager for funds in the hands of insurers as it will create a conflict of interest. The changes brought about by the enactment of the RB Act has increased scheme expenditures and there is need to introduce guidelines on expense and the budgetary needs of scheme, that is because administration budget into the deed is optional, it should include annual financial reports, administration, custodianship, levies, and investment management by the Insurance Companies. On Trustees as required by the RB Act, the responsibility vested to them are owners and unlike the previous trustees that existed under the trustees Act, Trustees may be unwilling to take up their big responsibility and thus opting for Trust corporation which have no personalized interest in the scheme. There is need to revisit the Trustees under the RB Act with an aim of harmonization with the present one under the Trustee Act. Another obstacle is the full implementation of RBA lies with National Social Security Fund (NSSF) 21 which is under IB ampists. The NSSF have in the best associated with massive waste and misappropriation of frauds and the various parastal schemes. In order to safeguard the Interest of the public, it is a view shared by many players in the industry that there is need to reform the NSSF Act and repeal the section that are not in line with RB Act to harmonize it to pave way for streamlining NSSF under the supervision of the RBA.

4.0 CHAPTER FOUR 4.1	FACTORS AFFECTING THE PERFORMANCE OF THE INSURANCE INDUSTRY IN KENYA. The performance of the Insurance Industry in Kenya can be fairly measured by profit they are posting. The Industry posted an operating profit of Ksh. 1.4 billion during the financial year 2000 and the total investment of the industry at the end of the year 2000 amounted to 53.6 billion. 1 Compared to the Banking Industry which posted on profit of approximately 10 billion then the Insurance industry is not performing well. It’s like the banks eat meat on the high table while insurers eat bones from the floor. 2 Most Insurance Industry player have raised camera over the performance of the Insurance Industry in Kenya. The Insurance Institute of Kenya (IIK) have tried to raise the issues in the industry affecting its performance and at the 16th Annual conference of IIK the theme “Insurance at the Cross roads” seem to have well captured the state of the industry. Prof. Joseph Kimura having analysed the problems facing the Insurance Industry in Kenya lamented that; ‘There is little doubt that there is going to be a major shake-up and perhaps melt-down in the industry. Insurance companies have in the recent part been put under statutory management and the latest being Lakestar Insurance. The worst breakdown was however the Kenya’s National Assurance which was a state owned corporation which had risen to be the biggest player in the industry. The factors affecting the Insurance Industry are many and varied and also linked and intertwined together. This chapter have tried to look at the factors affecting the Insurance Industry as well as problems and challenges.

4.1.0 GENERAL FACTORS THAT AFFECT DEMAND FOR INSURANCE There are many factors that affect demand for Insurance in Kenya. The following are some of the general factors that affect the demand for Insurance. 4.1.1 WEALTH AND INCOME Economic theory postulates that consumers satisfy their need according to their hierarchy of needs. This means that those with low income will use their income to purchase the bare essentials such as food, warmth and shelter first before using what remains to luxuries such as Insurance. Consumers Income and Wealth therefore affect demand for Insurance directly become consumers can only purchase Insurance if they have sufficient income to do so. The demand for Insurance is income sensitive and also income elastic. An increased salary or wealth enable a consumer to afford the Insurance cover. Insurance in Kenya have therefore been limited to the wealthy who can afford the premiums. Poverty prevalence in Kenya therefore explains why more than 50% of Kenyans have no Insurance policy of any kind as they struggle to purchase the bare essentials and the reduction of poverty will stimulate growth of the Insurance Industry as many Kenyans will take up Insurance. 4.1.2 COMPULSORY INSURANCE. The demand for certain type of Insurance are influenced by the law requirements which are compulsory. In Kenya motorist are required to take up compulsory Insurance to cover Third party bodily injury as provided by the Insurance Motor Vehicle (Third Party Roles) Act. 3 The Motorist therefore do not have a choice about whether or not to buy an Insurance policy or retain the risk. Motorist who do not comply with the law are apprehended by the Traffic police and therefore the demand for Motor Insurance policies depend on the number of vehicles on the road, however Insurance not being a priority in the hierachy of motorist have led to decline of Insurance cover. The decline of the compulsory Insurance also been attributed to the corruption of the Traffic police to take up bribes and allow uninsured vehicles to operate. Compulsory Insurance policies are also created by tie-ins, whereby there is an obligation to buy Insurance on an additional part of a contract. These contracts are like the ones given out by building societies and banks requiring their customers to take up Insurance policies as a pre-condition of obtaining a mortgage or a loan. 4.1.3 ATTITUDE TOWARDS RISK AND RISK AWARENESS. The Demand for Insurance also depend on the attitude towards risk and risk awareness. Different people have different attitudes towards risk depending on their understanding of the risk facing them. A prospective Insurance hugers would consider a particular risk because they consider themselves vulnerable to the type of loss and buys insurance in order to transfer the risk of loss from themselves to the Insurance company. Attitude towards risk and risk awareness depend also on he confidence of the prospective Insurance buyers attitude towards the Insurance company. With the Increased failure of Insurance companies to meet claims in Kenya have resulted to loss of public confidence on the insurance companies. In order to raise awareness and boast confidence on the Insurance Industry, Insurers have tried to raise the demand for Insurance by advertising in the newspapers, radio and television. Education also influence the attitude towards risks, in Kenya where illitrary still exist, cultural beliefs against taking insurance policy as bad omen have created a bad attitude and education level tend to boast awareness. 4.1.4 PRICE OF INSURANCE The demand for Insurance like any service is price sensitive, therefore the higher the price, the lower the level of demand and vice versa.

These depend on the following:- -	Increase in price lead individuals or organisation to look for other options to provide in house insurance. -	Insurance buyers tend to weigh the premium cost against the probability of risk occurring, in addition to the likely cost of the damage. If the premium seem to be excessive and hence uneconomical the buyer may therefore opt to stay uninsured. -	The price of Insurance which is high and beyond the reach of many prohibit people from taking the Insurance cover. The price of Insurance covering motor vehicle when raised in Kenya last year to more than 70,000 per year resulted to a decline to the number of Insurance, this was mainly due to the fact that the matatu operators could not afford the raise the money on the other hand insurers justified the raise of previous as due to high numbers of claims in the motor industry sector.

4.2 INSURANCE  FRAUD Insurance Fraud which is committed by those seeking to get a policy is also a major problem affecting the Insurance industry in Kenya today. Fraud can arise in the application for a policy and in the filling of a claim in a policy. During the application of a policy fraud is committed when one give false information relating to; Age, condition of the property to be insured or the state of the health of the person to be insured. In life assurance one who fails to give prior history which may affect premium also commit freud. Fraud also occurs when one overstates the cost incurred from a motor accident, damage from property and services offered due to illness. Insurance fraud has not been adequately embarbed due to task of effective reporting and enforcement system to monitor and avoid insurance fraud. Premium seem to be rising in Kenya because of the fraud syndicates. 4.2.1 CORRUPTION AND FRAUD The Insurance industry in Kenya have been affected in His performance by corruption. The corruption in the Insurance industry seem to be rising day by day and statistics conducted by transparency International 4 rank The Insurance sector among the top 50 most corrupt sectors Corruption involving insurance cases are wide and include lawyers for insurance companies and include lawyers for insurance companies and insurance employees involved in the cases. The fraud cases even include police officers, health workers, doctors, court officers, magistrates and even judges involved in the gigantic fraud. Several companies have been raided by the public regarding the corruption level in the Insurance sector. The Commissioner of Insurance have indicated that in 1999, the Commissioner received a total of 452 complains from policy holders general public and members of

the Insurance industry out of these 95 were settled and 357 were outstanding as at 31st December, 1999. In the year 2000 the commissioner received a total of 673 complains. 5 Even though the Commissioner have tried to solve the complains amicably there still remain a big number that are left unreported and unsolved, affecting adversely the performance of the Insurance Industry in Kenya. 4.2.2.	THE ROLE OF LAWYERS IN RELATION TO CORRUPTION IN THE INSURANCE INDUSTRY Lawyers play an important role in the Insurance Industry and in most cases act like a Samurai double sided sword to protect the Insurance Industry against excessive and fraudulent claims and on the other side to protect victims of accidents or those seeking claims from the Insurance Industry. The law and rules contained in statutes governing the conduct of Insurance business especially in claims are complex and often lead to disputes. It is rather simple to deal with a simple contrast than Insurance Constraints in Kenya. In most cases Insurance contracts are referred as ‘policy’ are worded in juristic language developed over the years by the common law in England and in many statutes governing Insurance in Kenya, with principles and doctrines that require interpretation by experts in Insurance law. Insurance companies employ lawyers in order to protect their interest as insurers against fraudulent claims or excessive exploitative claims. Therefore the rise of lawyers in the field of Insurance can be attributed to the nature of the Insurance business that have to involve lawyers in almost every aspect. Insurers have been blamed for the involvement of lawyers in most instances. In a typical scenario, a person entering into an Insurance contract with an insurer does not need a lawyer and in most cases do not involve lawyers however when it comes to claims insurer often are not willing to pay the insured from and the leading to litigation.

Lawyers have carried their duties diligently both to insurers and insured however there are cases of professional misconduct by lawyers which is inherently corruption and fraud. Professional misconduct by lawyers gave adversely affected the performance of Insurance in Kenya. Advocates have been involved in fraudulent activities and documents made available by the Association of Kenya Insurer (AKI) plethora of cases of compensation award misappropriation as well as bogus claims by lawyers. Justice Kuloba in the case of Muthanwa v. Apollo Insurance stated that ‘The Lawyers are triple satanic – and the wrongs done are in a litany which stretches like Bonguo’s live of Kings to the cracks of doom.’ The case released by AKI 6 reveal that advocates have been involved in defrauding the Insurance Industry by seeking claims for non existence claimants,7 forging medical reports, 8 and delaying payment for claimants. 9 Disciplinary measures, to curb corruption and professional misconduct by Lawyers carried out by the Lawyers complains commission. The Lawyers complains commission established by an Act of parliament in 1989 to check the conduct of lawyers and provide a mechanism for curbing corruption among lawyers. The Commission is empowered to enquire into claims against advocates, firms of advocates and their employees which arise from client – advocate relationship. The commission works under the Attorney General and funded by the government. The punishment for professional misconduct are from fines, 10 suspension, 11 being struck of the roll of advocates12 and in some cases the proceeding sent to the attorney General for the office to Act in accordance with sec. 61(3) of the Act. 13

In as much as the law society have to curb corruption in the legal profession the victims have in many cases remained uncompensated. In order to address the issue adequately an insurance scheme which aim at compensating victims of dishonest lawyers similar to that of quotario Canada, law society of Upper Canada should be established in Kenya. 4.2.3 THE COURTS INVOLVEMENT IN THE INSURANCE INDUSTRY The courts are directly involved in handling matters affecting the Insurance industry. Owing to the duty of care the courts have, it is required to solve disputes and cases amicably and protect both the Insurance Industry and the public at large. It is arguable that courts play an important role towards development however it has also contributed to problems in the industry. The suspension on the performance on the Judiciary can be illustrated well by the judgement of Justice kwach when he stated that:- “These was a time when the court enjoyed the intergrity of the caesars wife. It was above suspicion. But that is now water under the bridge. Something has to be done to redeem the reputation and independence of this court” 16 The reputation of the court have been tainted in the way they handle cases. The judges have been considered spineless and mere plays of the executive. 17 Courts have affected the performance of the Insurance by the way they assess the quantum of damages to be paid to accident victims. Insurers have viewed the system of assessing the Quantom of damages as improper because of it’s inconsistency and it is quit unpredictable. It would be better to provide for statutory provision in the Insurance Act which will make the assessment of Quntum of damages relating to Insurance companies regulated.

The problem with the current law relating to assessment of Quntum of damages are that they leave the trial judge with too much disreaction to decide how much to award the victims and in some cases have awarded excessive damage that cripple the Insurance Industry especially the Motor Insurance Industry have been affected in trial of personal injury and death courses. An analysis of trials of Personal injury and death 18 reveal that the application of the Law Reform Act 19 and Fatal Accident Act 20 does not clearly state the criteria for awarding and assessment of Quntum of Damages. One can hardly distinguish between injury and loss and lawyer depend on the law of precedents which can hardly be found resulting in unpredictable results in the court awards some of which can not be justified and regarded as excessive and perceptive to the industry. The court award to accident victims in most cases do not seem to reflect the extend of injury or take into account the liability of the Insurance to pay. There is also alleged conspiracy between lawyers and the court system to fleece insurers. The courts have also become congested with cases of all sorts and therefore insurance cases are delayed upto a year to get judgement, affecting adversely the Insurance industry. It would be prudent to set up a court to deal with Insurance cases only to ensure speedy trial and hence justice to all, because justice delayed is justice denied.

4.3 NEW CHALLENGES AFFECTING THE INSURANCE INDUSTRY There are several new challenges facing the insurance Industry in Kenya as well as worldwide. The three most intriging are the prospects e-commerce, globalization and the HIV/Aids pandemic. 4.3.1 E-COMMCERCE/E-INSURANCE E-Commerce is the process of transacting business through information and communication technologies (ICT). Globally e-commerce and e-trade have impacted positivency on the West and South East Asia. In Kenya the full potential of e-commerce particularly in facilitating the penetrating local goods and services in International Market is yet to be realised. 21 Major drawback encountered in the establishment office thriving e-commerce environment over the years include:- -	Lack of legal framework covering recognition of electronic signatures and electronic contracts. -	General lack of awareness of the e-commerce concept by majority. -	Cultural attitudes especially regarding security. Insurance e-commerce is expected to have certain impact on the global Insurance premiums. In a special edition of the United nations Conference on Trade and Development news teller titled ‘The Insurance forum. The impact and implication of e-insurance have been discussed, in as it pose a challenge in the Insurance industry. 22 “As the world enters a new millenium and as far as developing contrier are commercial electronic commerce still looks more like a promise than a reality. To many it even looks more like a challenge than a promise” by Bruwo Lawin Electronic Commerce & Dev. UNCTA is publication Bruno goes further in assessing the development of electronic commerce to amend legal regulation to accommodate the new development. It is arguable that electronic commerce has started to affect radically and in an irreversible fashion, the very fundamental of economic theory and business pratrol. E-commerce will improve efficiency I competitiveness and even the raison d’etre of enterprises will require new measures and definitions. Electronic Commerce is quickly emerging as a particularly visible and spectacular incarnal of globalization. At this stage it is still easy to say whether electron commend will narrow or broaden the gab between the rich and the poor. 23  The e-commerce revolution in Insurance include:- -	The rethinking of the relationship between insurers and clients on how to take advantage of the Internet to offer tailor made products at low administrative costs. Through automating the motion of quote generation, contacting and process claims. -	A migration firm expenses closed propriety network system to low cost internet based systems for EDI. -	The 24 hour worldwide and always accessible insurance business. -	The development of internet enabled software for conducting insurance operation electronically both for use internally in the insurance operator’s offices as well as for enabling insurance operators. In order for Kenya to fully benefit from e-commerce as well as e-insurance there is urgent need to implement the following:-

-	Development of information and awareness programmes general towards attitudinal change and reassurance to the communicating of the security and authenticity of electronically processed documents. -	Creation of investment incentives for potential investors to extend ICT and investment service to the rural areas and -	Formulation of a legal framework related to electronic signature and contracts. 4.3.2 GLOBALISATION AND INSURANCE IN KENYA Globalisation have created un monde sau frontieves (a world without burdens). There is increasing interdependence of nations and business people across space, time and issues. There has been liberisation and growth of international trade with proliferation of International rules standards and conventions. In the insurance industry in Kenya globalization have been felt especially serving as a link between the Global Insurance Industry and the Kenya Insurance Industry. The Global Insurance Industry affect the performance of the Kenya Insurance Industry in many ways especially the reinsurance sector. With the increase of technology making the world a global village have made it possible for all insurance companies to be related to each other through treaties. Kenya like most of the developing countries tend to depend on the developed nations big insurance companies for reinsurance, this dependence therefore affect the price of the local insurance firms. Treaty reinsurers cover many of Kenya’s insurers especially in the field of Aviation and as a result world reinsurance market determine the market prices and conditions.

The effects of the Global Insurance Industry on the Kenya Insurance Sector was evident in the Twin Towers and Pentagon disaster. 24 Immediately after the disaster the policy of reinsurance had changed as a result of financial uncertainties that surrounded the reinsurance firms. Due to the risk and speculation the following songe also affected Kenya. -	Rice in prices leading to increase I premiums payable on property Insurance and life assurance. -	Treaty reinsurance was affected by additional inclusion on the treaties especially the exclusion of Aviation and airport liabilities under treaties. -	A terrorism clause was also introduced in all of the insurance firms treaties by reinsurers. -	There was also withdrawal of underwriting responsibilities due to strict underwritten guidelines which made it difficult or uneconomical to get a revision of the terms. -	Treaty reinsurers also reduced their overall global capacity leading to pulling out of Kenya in insurers from the mainstream world reinsurers to other willing to take up their terms. 4.3.3 HIV/AIDS AND INSURANCE The HIV/AID 25 have affected almost every sector in the economy including the insurance sector. The Insurance sector have been affected in many ways by the HIV/AIDS pandemic especially with regard of life policies. The HIV/AID cases had been reported, but 15 years later Kenyas re now comuting 500 deaths daily and it is estimated that 2 million Kenyans are infected out of which 1.5 million already dead. One Million children left orphans. There is reduced life expectacy from 63 to 48. The government have tried to curb the epidemic and declared it a National disaster. These is also a National HIV/AID policy as expressed in the Sessional paper No. 4 of 24th September 1997 on ‘AID in Kenya’. Discrimination against individuals with HIV/AIDS individuals violates their human rights and hamper prevention efforts. PLO Lumumba commenting on the issue wrote that; ‘ Discrimination in the context of the HIV epidemic ecompasses a broad range of attitudes and actions. It is permitive has serious consequences and is becoming more subtle and hard to redress. Human rights issues of people with HIV/AIDS is one of the critical issues of our age and must be confronted without any fear’26 The Insurance Sector have been faced with legal and ethical challenges relating HIV/AIDS pandemic. Insurers are there to make business and business requires profit which require them to enforce standards to be observed to protect their interests. In Kenya the law protecting HIV/AID patients is lacking and this have affected rights and the performance of the Insurance Industry. The areas that need to be looked upon relating to insurance are:- (i)	Pre-insurance testing (ii)	Now-disclosure of test results (iii)	Refusal to assume cover on claim of seropositivity. In order to address the issues above the Dakar Declaration and Paris Declaration that require strengthening of national and international mechanisms that come with HIV/AIDS relate human rights struck be contend and incorporated in Kenya laws.

A comparative study on nations will laws protecting HIV/AIDS patients show the following; Philippines have enacted legislation prohibiting discrimination on actual perceived or suspected HIV status in areas of insurance health and quarantees the right of confidentiality and also prohibit compulsory HIV testing and require written consent. The Americans have also adopted the Americans with disabilities Act (ADA) which secures as the main law. Protecting the civil rights of people with HIV Aids. Kenya should therefore strive to enapt similar legislation not only to protect individuals against discrimination but also provide a way of safeguarding the insurance industry from huge losses on HIV/AIDS related cases.

CHAPTER FIVE 5.0 LESSONS AND RECOMMENDATION FROM THE STUDY 5.1	DEVELOPMENT OF INSURANCE LAW IN KENYA The development of Insurance law in Kenya have been based on British system, this have created a reliance that ought to be done away with and eliminate the stigma related to the post legislation, that have become outdated and absolete. The Insurance sector significant changes over the years are attributed to the legislative structures and further improvements and development of the Insurance Industry require new laws to revitalize the industry and embrace world trends to ensure that the industry prospers. 5.2	 THE INSURANCE ACT CAP 487 The Insurance act need to be reformed in order to enhance the regulation of the Insurance Industry and deter unscrupulous while protecting the public interest without hindering development in the sector. The following sections in the Insurance Act need to be reformed: -	Section 3(1) which establishes the office of the commissioner of insurance should be replaced by introduction of an Authority to regulate and develop the industry. The Authority can be called ‘The Insurance services Authority.’ -	Section 7 regarding the powers of the Commission to call for information and production of books and papers should be enhanced to provide for regular checks in a periodical basis like the one governing the banking industry. This will enhance monitoring and avoid costly mistakes by implementation of pro-cective approach. -	Section 22 subjecting insurers to company Act should be enhanced especially relating to receivership winding up and insolvency procedures to curb the ‘villains of company law’ and prevent the collapse of insurance companies. The limiting of controlling powers in section 22 should be based on merit and more control on investment rather than the controlling interests. -	Section 23 and 24 regulating the registration process for insurers should be amended to vest the licensing powers to a commission or Authority with an ad hoc board composed of the industry stakeholders with government representative and abolish the current system where only the commissioner and minister have the licensing powers. -	Section 41 provision on solvency margins should be strengthened, the margins of solvency for life insurers should be 5% (minimum Ksh. 1 million) in excess of liabilities. Assets must exceed liabilities by Ksh. 1 million. Specified guidelines and reserving of policies should also be formulated to prevent collapse of Insurance companies. -	Section 50 restrictions regarding investments should be abolished to enable insurance companies to compete well with the banking industry and other financial institutions. -	Statutory requirements should be introduced to encourage insurers to invest in local authorities. -	Part VI of the Act regarding accounts, Balance sheets, auditing and actuarial investigation should include:- -	The publishing of annual accounts reports in the public through the newspapers to provide the public to know the financial status of insurers like in the banking industry. -	International Accounting standards (IAS) should also be introduced to require among other things to include land and buildings in their balance sheets. -	Chief executives and independent directors should be included in decision making to ensure that there is accountability and transparency. -	Accounting officers doing interact audits should be made answerable to the regulating body and the policy holders or shareholders. -	The Insurance Act should be revised to require every Insurance Company to employ acturists to run their business and help to make informed decisions. -	Section 73 and the Eleventh schedule to regulation 22 should be abolished to avoid/stop limiting Insurance companies in their management expenses and regulate the performance of the company by close monitoring and using solvency in origins. -	Part XIII of the Act which provide for the establishment of Kenya reinsurance corporation should be amended to pave way for privatization, section 145 that provide for a mandatory reinsurance cession should be placed out. 5.3	 THE MARINE INSURANCE ACT CAP 390 LAWS OF KENYA -	The Marine Insurance act should be subjected to complete overhaul as it ahs become outdated and absolete. -	Section 4 of the Judicature Act should be deleted to pave way for the applicability of Kenya procedures. -	A maritime regulatory authority should be established to regulate maritime trade, merchant shipping practice and the development of supplimentary bodies. -	A special Admirality court should be set up to deal with admirality cases. -	Conventions that have been ratified should be incoporated to our municipal laws. -	Kenya should abolish the old flague rules and embrace the flamburge regime which offers more protection to cargo owners and the carrier. 5.4	 THE INSURANCE MOTOR VEHICLES (THIRD PARTY RISKS) ACT CHAPTER 405 LAWS OF KENYA. -	The Act should be reformed to incorporate a regulatory framework that can treamline the sector. -	Adoption of the Swedish model under which a data bank of all registered vehicles are monitored should be introduced. -	Enactment of provision to curb corruption and Freud in the industry. -	Guidelines should be formulated to form statutory provision to guide the courts when awarding compensation claims to victims of accidents; and a two tier no fault scheme of reasonable ceiling of 1.5 million would be appropriate. 5.5	 THE RETIREMENT BENEFITS ACT -	The conflict of interest in the event a manager is appointed where the trustee have opted for Guaranteed Fund should be reformed to abolish the role of managers when it comes to Guaranteed find under insurers and provide guidelines on the scheme regulations. -	There is need to introduce guidelines on expenses and the budgets need of a scheme to guide the administration under deed. -	Flamonisation between Trustees required by the RB Act and the Trustees Act. -	The RB Act should be harmonized with the NSSF act for the RBA to fully regulate it’s performance and ensure transparency. 5.6	 FACTORS AFFECTING THE PERFORMANCE OF THE INSURANCE INDUSTRY IN KENYA The performance of the Insurance Industry in Kenya is affected by:- -	Wealth and Income – compulsory insurance -	Attitude toward risk and risk awareness -	Corruption and fraud -	The role of lawyers -	The court involveness in the industry. -	Poverty and corruption eradication would enhance the performance of the insurance industry. -	New challenges affecting the Insurance industry are e-commerce, globalisation and HIV/AID pandemic. To promote e-insurance there is need to develop information and communication technologies, create awareness, of e-commerce and formulate a legal framework related to e-commerce and e-insurance. Globalization affects the performance of Kenya Insurance Industry especially the reinsurance sector and there is need to embrace international trends to compete effectively in the world market. In Relation to the HIV/AIDS and Aids Related condition (ARC), the Insurance industry in Kenya should be regulated by the Insurance Act to avoid discrimination. Legislative provisions should be put in place: -	To establish mandatory and uniform standards for assessing HIV/AID and ARC risk for determining insurability which are deemed to be sufficient reliable to be used for life and disability, income risk insurance classification and underwriting purposes. -	To require the maintenance of strict confidentiality of personal information obtained through testing. -	To require informed consent before the insurer test for HIV/AIDS. -	Provide that no insurer shall test for HIV/AIDS or for the presence of antibodies to HIV for the purpose of determining insurability other than that in accordance with informed consent, counselling and privacy protection provisions. 5.7	 PROTECTION OF POLICY HOLDERS In order to protect policy holders adequately legislative structures in the form of a statutory requirement should be enacted to protect policy holders. A policy holders protection body should be formed with the mandate to take specific measures for the purpose indemifying or otherwise assuring or protecting policy holders and others prejudiced by he inability of insurance companies carrying a business in Kenya to meet their liabilities issued or securities given to them.

-	The body will have the duty of controlling the process of voluntary winding up of companies, receivership and amalgamation. -	To secure continuity of Insurance or pay the policy holders the value of future benefits.

6.0 BIBLIOGRAPHY 1.	The Insurance Act Cap 487 Laws of Kenya. 2.	The Marine Insurance Act Cap 390 Laws of Kenya. 3.	The Insurance Motor Vehicles (Third Party Risks) act Cap 405. 4.	The Retirement Benefits Act 1997. 5.	The Judicature Act Cap 8 Laws of Kenya. 6.	J.B. Byamugishu, Insurance law in East Africa, EALB. 7.	C.N. Mwaura, Genral principles of Insurance. 8.	S.R. Diacon and R.L. Carter, Success in Insurance by J. Murry Publishers London 1982. 9.	Parkington O’Dowd and Legh – Jones Longuare MacGillivary & Parkington on Insurance law 6th Edition Sweet and Maxwell. 10.	LCB Gower, Principle of Modern Company law sweet and Maxwell. 11. Encyclopaedia Brittanica 12.	M Amau, “Developing International Standards for Insurance.” UNCTAD workshop publication. 13.	John Bird, Modern Insurance Law, Sweet & Maxwell. 14.	Muriel L. Crawford, Law and Life Insurance Contract 7th Edition Irwin Inc chicago. 15.	National Development Plan 2002 – 2008 ‘Effective Management for sustainable Economic growth and poverty Eradication.’