The Insurance Regulatory Authority (IRA) is seeking tighter scrutiny of life insurance business to lower exposure to money laundering and terrorism financing threats.
The regulator says the packaging of life insurance products, also called long-term business, makes them prone to money laundering and terrorism financing threats and tighter supervision is required.
Treasury Cabinet Secretary John Mbadi told Parliament on Thursday the IRA is currently reviewing the activities of long-term insurers to identify gaps that will inform improved supervision.
“The Authority is also conducting a comprehensive money laundering and terrorist financing risk assessment on the vulnerability of the insurance industry. This will aid in the identification of areas of improvement so as to strengthen the supervisory framework,” said Mr Mbadi.
During a recent briefing with journalists, IRA had alluded to the review, saying that this was part of Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) initiatives to lift Kenya from the grey list.
The country was grey-listed in February 2024 by the Financial Action Task Force —a global anti-money laundering and terrorism financing watchdog —which cited shortcomings in the country’s financial oversight systems.
IRA senior manager for prudential supervision Mary Nkoimu said the long-term nature and packaging of life insurance products makes them a target for individuals looking for avenues to launder money. She said this calls for tighter supervision.
“Globally, long-term insurance products are more prone to be abused for money laundering and terrorism financing especially because of the cooling off period of 14 days between filling the proposal forms, making the payment and accepting the product,” said Ms Nkoimu.
She explained that the 14 days cooling period means one can register for a life insurance product, make payment and then cancel the contract and seek refund two weeks later, thereby providing room for launderers to disguise their source of money as though coming from insurance compensation.
Long-term products also allow top-ups, which Ms Nkoimu says launderers can exploit by first making a small investment and following up with several top-ups to avoid being reported to the Financial Reporting Centre.
“Premiums can also be paid at regular intervals and this makes it palatable for criminals. Some of the long-term products also allow for surrenders and so one can pack money in an insurance policy and pull out three years later and declare the surrender as the source of cash,” she said.
Long-term insurers started being subjected to AML/CFT after the IRA in 2023 got the powers to regulate, supervise and report suspicious transactions.
Now IRA requires insurance firms to disclose beneficial owners. Ms Nkoimu noted that the IRA had noted a trend of layering of ownership structure to hide the beneficial owners.
IRA data shows gross written premium under long term insurance business grew by 12.5 percent last year to Sh191.2 billion, while claims and policyholders' benefits surged to Sh105.74 billion from Sh94 billion in 2023.
