Invesco Assurance Company tried to handle a greasy industry and died. It was resurrected, but is now on its last leg for a second time.
Insurance industry players are wary of insuring the matatu sector owing to the recklessness, theft and high volume of claims that characterise it.
Most of those who have tried have died – Invesco is the last firm standing.
But a look at the court cases filed by the firm and against it shows that what gave life to Invesco is the same thing eating away at it.
After the firm was reincarnated in 2010, the State made a deal with passenger service vehicle (PSV) owners, the Matatu Owners Association (MOA), to buy out the firm.
It was re-licensed by the Commissioner of Insurance to resume trading on January 18, 2010.
Out of bankruptcy
Invesco emerged from statutory management, a major fete as it was the first matatu insurer to come out of bankruptcy.
Other insurance firms that have focused on the PSV sector have collapsed under the weight huge claims, many of them fraudulent.
This has turned insuring matatus into a graveyard for many insurers, and some of the companies that have taken a beating and gone on to collapse include Stallion, United, Lakestar, Access and Standard Assurance.
MOA played an instrumental role in Invesco’s resuscitation and when it resumed business, the association had an 80 per cent stake. The acquisition of the insurer by matatu owners was expected to turn around its fortunes.
MOA, well versed with the inner workings of public transport, had hoped to tame a myriad of bogus and fraudulent claims that had bedevilled PSV underwriters.
Fraud is a major concern in motor vehicle insurance sector, where authorities estimate that more than 40 per cent of claims are fake. In the case of Invesco, the statutory manager at some point noted that an audit had shown 630 out of 1,000 claims had been fraudulent.
MOA was also banking on its more than 5,000 members, as well as the goodwill from the industry, to support the business as stakeholders.
A decade later, however, the same members have proven to be unsympathetic and have dealt with Invesco much like they would any other insurer.
Court cases tell a story of a matatu industry that fattened the cow for slaughter, and is now eating each tendon and skeleton in voracious mouthfuls.
And as Invesco faces turmoil as passengers seeking to have it folded for failing to honour court awards, matatu owners will be left on their own, high and dry, to cope with the same crime in claims that cartels in the industry instituted.
The firm admitted that the last five years have been symptomatic of abnormal claims, with matatu owners failing to tame an ogre that threatens to drive them out of business.
Other than overwhelming claims from the PSV sector and other debts, Invesco also had to contend with fraud brokered by rogue insurance brokers and agents who would take money from clients but fail to remit it to the insurer.
The brokers and agents owe the firm Sh300 million.It also emerged that vehicle owners forged insurance certificates and claimed compensation using these documents. Further, those making claims usually press parallel suits, leading to double or triple compensation. And some are paid for non-existing accidents. Others go to the extent of obtaining orders without the insurance firm being heard.
“The portfolio of claims being lodged against the first petitioner (Invesco) has continued to increase abnormally in the last five years attributed to fraudulent claims, cartel infiltration in the claims settlement of the petitioner,” the firm told the court.
Worse still, there are those who inflate accident claims and get excessive awards from the courts.“The first petitioner has suffered and continues to suffer financial haemorrhage and rip-offs by cartels to the peril and detriment of bona fide claimants and the general insuring public,” said the insurer.
There has been a systematic collapse of PSV underwriters in the country for the last 15 years, which, in court documents, Invesco attributes to fraudulent claims ran by cartels operating within these firms.
The bloated and unsustainable claims as a result of matatu drivers’ recklessness has been another cause of harm to insurance firms. It emerges from court filings by Invesco that foreign insurers shun PSV underwriting due to “bad risk”.
It has been left to Kenyan investors to grapple with the menace. “The collapse or reckless closure of the first petitioner will lead to massive exposure of matatu owners, displacement in business of a magnitude that cannot be retained by any other company, and resultant chaos in the public transport sub-sector which will lead to losses running into billions of shillings,” the firm’s court papers read.
In 2005, the firm was forced to overhaul its management in the claims department after it emerged that they could not combat fraud. The change did not, however, bring a solution as auctioneers sporadically and repeatedly kept disrupting operations both at the head office and branches.
Invesco says it has become virtually impossible to operate normally owing to auctioneers’ visits, which prompted the firm to seek the court’s intervention to survive in 2007.
It had convinced the court that it would investigate how it accrued Sh30 million in claims every month. In court documents, Invesco says the idea was short-lived after Neptune Credit Management convinced the board that they would manage the claims department, thus halting fraud investigations.
Unfortunately, the Invesco board halted the idea after orders that kept off auctioneers were vacated. The relationship between Neptune and Invesco would go sour after the former moved to court seeking to wind up the latter over Sh20 million in contested pay.
Invesco claims it had paid nearly Sh40 million to Neptune in less than two years. Invesco now faces more than 200 cases in courts, among them, winding up cases. It says it will pay out Sh300 million to fraudulent claims.