Could Statutory Management for ‘Turnaround’ of Concord Insurance Be The Beginning Of The End?

By Mwangi Wanjumbi- Newtimes BS Chief Trainer/Consultant.

Even as the new national governance modalities take shape in Kenya, business activities continue albeit some restlessness. Others are seriously threatened. In that regard, did we read clearly or could it have been a language mix-up? The latter is the impression that came to mind after carefully interrogating the process of putting Concord Insurance Company under statutory management.  But, the whole matter is intriguing. Why?  The Insurance Regulatory Authority (IRA) considered the statutory management option and at the same time, locked out the company from undertaking new business. Could the cause of action have probably been confused with the receivership process?

Despite unsuccessful attempts of clarifying the situation with the relevant offices at (IRA), signs of trouble in an insurance company present themselves at very early stages. In the case of Concord, these early warning signs could no doubt have been obvious to IRA. The institution audits the records of each Insurance company, almost on a quarterly basis. Why this view? Personally, I worked in the insurance industry for many years. More still, I have in the recent years trained and consulted for several companies in the same industry. That leads to a good grasp, therefore worthwhile insights on the insurance industry.

Apparently, it is for now difficult to predict any revival chances of the said company. Its fate now seems to be sealed. This is so especially when it is not supposed to conduct or accept any new business. Ordinarily, the work of a statutory manager would be to put in strategies of ensuring business continuity, as well as compliance with statutory requirements. But when should that happen?

Fundamentally, the insurance sector has all throughout the years been a highly controlled industry.  This is especially in realization that insurance companies do not have their own money. They pool funds that are termed as premiums from the insuring public. If for example one is insuring a car worth KES 1 million, that becomes the sum insured. A proportion of say 10% of this sum insured is charged as the premium due. In this case, it is KES 100 thousand. If there were say 5 people with similar transactions, there could be a total premium of KES 500 thousand paid to the insurance company, against a sum insured of KES 10 million.

Typically, there are many members of the insuring public with similar or different insurance transactions. The sum insured becomes a possible liability owing by the insurance company to its clients. Once the insurance period expires, the company safely pockets the premiums, thus recognizing them as profits. But, if the insured clients incur any losses, the insurance companies are duty bound to compensate for those losses in form of insurance claims.

Ideally, management of insurance companies is about acquiring as much premiums as possible, through the sales process. The same are supposed to be allocated to any emergent claims as well as administrative expenses which include salaries, rents and various others. The balance of the premiums need to be invested carefully, so that income is generated that will help in offsetting any future claims. But, what really happens?

Some companies are very good in acquiring large volumes of premium income, investing the same prudently, ably offsetting any resultant claims and eventually being left with positive results. Others are seriously challenged in balancing those activities. More still, it is good to realize that insurance is a business like any other. It is founded by individuals, groups of individuals or even other entities.

There are those who genuinely appreciate and ably transact insurance the way it’s supposed to be done. Likewise, there are others who are overwhelmed by the realities of handling so much seemingly ‘free money,’ in total disregard of future claims.  When greed, impunity and sometimes ignorance are added to this, it yields a complicated scenario better addressed elsewhere.

Nevertheless, the IRA exists precisely to ensure that investors and management systems in the insurance industry are always conducting themselves discreetly.  Notably, the operations of the insurance industry were some years ago policed by Kenya Reinsurance Corporation. This organization used to statutorily receive a certain percentage of the premiums, in the various classes of business transacted in the industry.

Similarly, the organization used to meet comparable proportions of the claims settled. Realistically, this corporation used to be an insurer of the insurance industry, though guided by legal statutes. Its operations were similar to those of the central bank as applied to supervisory role of the banking industry.

In the meantime, the precursor of IRA during the earlier days, was Office of the Commissioner of Insurance. It was then a department of the ministry of finance.  Introduced sometimes in the 1980s, it was supposed to provide policy direction to the insurance industry. But, in the recent years IRA has been fully monitoring and regulating the insurance Industry. The extent of success during this time is a matter of conjecture.

Common knowledge however, is that some insurance companies have faced challenges. Some have closed doors completely whereas others are in various stages of liquidation. Examples of include Access, Kenya National, Blue Shield, Standard Assurance, Stallion, Lake star, United and Invesco. The latter was however salvaged by the Matatu industry and now largely takes care of the insurance needs of this sector of the economy.

Sadly, Concord Insurance Company, risks joining the ‘used to be insurance companies.’ This is so especially given the adverse publicity and redemption approach. Notably, Insurance companies sell intangible solutions, which are largely hinged on perceptions and more particularly corporate image.

Closing such a company’s doors especially on account of business challenges, marks the end of credibility, and the beginning of tribulations for the insuring public and employees. Why? This can’t be the same a merchandising business that can easily re-stock and re-open. The statutory manager becomes as good as a receiver manager whose work is more aligned to liquidating the assets, paying off the debts and closing shop for good. Could the affected insurance have been salvaged?

Yes indeed. The statutory manager could have been engaged for the purposes of restructuring and turning around the company at the onset of trouble. Doing it at this stage is offering too little help too late, especially at a time when all efforts should be geared towards economic take off.  Let others not be treated similarly in this new dawn.

(Welcome for more STRUCTURED learning on this area, in our Business Leadership and Performance Management Training as well as Strategic Leadership & Management Workshops. Meanwhile, please note that personal and team assessment tips/guides on desirable re-alignment strategies, are now incorporated into all our training programs. This is in realization that people will inevitably unleash their potential only when work becomes fun.  (For guidance see Calendar and Training Plans attached)