The government is finally realizing the dangers of allowing undercapitalized insurers to continue operating.
The Insurance Regulatory Authority (IRA) introduced higher capital requirements for underwriters in June 2020 in a move to risk-based supervision.
This required insurers to increase their capital to cover 200 percent of the absolute minimum levels of Sh400 million for general business, Sh600 million (life coverage) and Sh1 billion (composites).
But enforcement of the tightened capital requirements has been suspended primarily due to fears that it will force the closure of many insurers unable to raise new funds from existing shareholders or new investors.
Another reason for the regulatory break was the outbreak of the Covid-19 pandemic, which understandably put the insurance and non-insurance sectors in trouble. But it is now clear that the search for stronger underwriters cannot be put off indefinitely.
The recent collapse of Resolution Insurance and the widening of the capitalization of others reminds us that weak companies will continue to fail, causing severe losses to policyholders and other stakeholders.
Insurers have had ample time to do what is necessary if they are to continue in this business. It is now prudent to enforce risk-based capital requirements.
This, of course, should translate into a consolidation of the sector, as weak firms merge and others are acquired by stronger institutions. The result is that we will end up with fewer institutions that will be in a better position to serve their customers.
Owners of underwriters who may be victims of reforms may not like it, but their interests should not override the common good.
Therefore, we expect Treasury Cabinet Secretary Ukur Yatani to keep his word and give the IRA the freedom to crack down on rogue underwriters.
As he noted, the prevalence of weak and insolvent underwriters is exacerbating public distrust of the sector, which has the lowest absorption in the financial services category.
Industry regulation should borrow a leaf from the banking sector, which has seen the closure of rogue institutions and the forced sale of those whose owners were unwilling to provide the necessary capital.
As the country cherishes the ambition to transform itself into a powerful financial center, it follows that it must lead with better and consistent regulation.