By Issa Hussein - Reporter
Kenya, June 03, 2026 - Thousands of Kenyans whose insurance companies collapse before the expiry of their policies are forced to purchase fresh cover despite having already paid premiums, exposing them to double financial costs due to gaps in the law, the Commission on Administrative Justice (CAJ) has said.
In an advisory opinion issued to the Insurance Regulatory Authority (IRA), the Ombudsman said the absence of transitional safeguards for policyholders affected by insurer insolvency undermines fairness and administrative justice.
The commission's findings follow complaints from policyholders of Trident Insurance Company and Corporate Insurance Company, who were left without effective insurance cover after the firms became insolvent.
According to the commission, the current legal and regulatory framework does not explicitly require the IRA or other entities to shield policyholders from the immediate effects of insurer collapse.
“Upon review of the prevailing legal and regulatory framework, there exists no explicit statutory provision directly obligating the IRA or related entities to cushion policyholders from the immediate consequences arising from insurer insolvency,” the commission said.
The Ombudsman noted that while the Policyholders Compensation Fund established under Section 179 of the Insurance Act offers limited post-loss remedies, it does not adequately address the immediate operational and legal challenges faced by policyholders.
This is particularly problematic for motorists, who are legally required to maintain valid insurance cover under the Insurance (Motor Vehicle Third Party Risks) Act.
The commission warned that policyholders whose insurers become insolvent are often compelled to purchase new insurance policies to remain compliant with the law or risk penalties, despite having already paid premiums to the collapsed firms.
At least nine per cent of Kenyans hold motor vehicle insurance policies, making the issue a significant consumer protection concern.
CAJ Chairperson Charles Dulo urged the IRA to implement urgent reforms to protect consumers and uphold Article 47 of the Constitution, which guarantees the right to fair administrative action.
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Among the recommendations is the establishment of early warning systems that would require insurers facing financial distress to disclose their solvency status and enable the public to access such information.
The commission also called for restrictions on distressed insurers, including barring them from issuing new policies without regulatory approval and creating clear rules governing premiums paid before insolvency.
To address the problem of double payments, the Ombudsman recommended the introduction of interim recognition for policies issued by insolvent insurers and a grace period for motorists to obtain alternative cover without facing penalties.
The commission further urged the IRA to develop a real-time public portal where consumers can verify the licensing status and financial health of insurance companies.
Other proposals include mandatory transfer of insurance portfolios from failing firms to solvent insurers and requiring all insurance companies to maintain contingency plans to protect policyholders.
The Ombudsman also called for amendments to the Insurance Act to introduce clear transitional safeguards and obligations during periods of insurer distress, statutory management and liquidation.
“The absence of transitional safeguards for policyholders whose insurers become insolvent offends the principles of fairness, reasonableness, and proportionality,” the commission said.
The advisory opinion was copied to Chief of Staff and Head of Public Service Felix Koskei. The commission said it remains available for further engagement with stakeholders to strengthen consumer protection within Kenya’s insurance sector.