Policyholders Gain KSh 500,000 Payout Cap in Kenya’s Insurance Reforms

This uniform cap across all insurance classes takes effect from January 1, 2026, via a gazette notice from the Policyholders Compensation Fund (PCF) Board.

In Gazette Notice No. 349, dated January 9, the Policyholders Compensation Fund Board, in consultation with the Cabinet Secretary for the National Treasury, confirmed the new compensation limit.

“pursuant to section 179 of the Insurance Act and regulation 12 of the Insurance (Policyholders Compensation Fund) Regulations, 2010, the Board of Trustees of the Policyholders Compensation Fund, in consultation with the Cabinet Secretary, National Treasury, has approved that the maximum amount payable as compensation on any one claim, for all classes of insurance, shall be Kenya Shilling Five Hundred Thousand (KSh. 500,000),” the notice reads.

The move addresses longstanding vulnerabilities in the sector, enhancing trust amid rising insolvencies.

The PCF serves as a critical safety net under the Insurance Act, funded by levies from licensed insurers to protect customers when firms fail. Previously capped at KSh 250,000 per claim, the new KSh 500,000 limit applies to statutory management or license cancellations post-gazettement.

“This compensation limit shall apply to policyholders and claimants of any insurer that is, after the commencement date of this Notice, placed under statutory management or whose licence is cancelled in accordance with section 67C (2) of the Insurance Act,” the notice further stated, highlighting that policyholders of insolvent or deregistered insurers are fully protected.

It covers motor, medical, life, and property policies uniformly, simplifying payouts for individuals and businesses.

Eligibility targets valid claims from affected policyholders, excluding disputes with solvent firms or rejected claims due to policy exclusions.

This reform aligns with broader financial safeguards, like the Kenya Deposit Insurance Corporation’s KSh 500,000 depositor cap.

Historical Context and Sector Challenges

Kenya’s insurance penetration remains low at under 3%, hampered by past collapses like Gulf Insurance in 2022, leaving thousands unpaid.

The PCF has handled dozens of cases since inception, but prior limits often fell short for high-value policies. Recent Treasury approvals reflect a push to mirror global standards, following Investor Compensation Fund hikes to KSh 200,000.

Infighting and mismanagement have plagued regulators like the Insurance Regulatory Authority (IRA), with public education drives like PCF Mtaani aiming to boost awareness. As of 2026, over 50 insurers operate, but failures expose gaps in oversight.

Implications for Consumers and Businesses

Policyholders now enjoy stronger protection, potentially spurring uptake in a market valued at KSh 300 billion annually.

For matatu owners, medical claimants, or homeowners, KSh 500,000 covers typical losses better than before, though high-net-worth clients may still face shortfalls.

Businesses benefit from streamlined claims, reducing downtime from insurer woes.Critics note the cap’s non-retrospective nature, leaving past victims under old rules. Enhanced consumer confidence could drive growth, aligning with Kenya Kwanza’s 2026 Budget Policy Statement priorities.

Prior to 2026, the maximum compensation per claim for policyholders affected by failed insurers stood at KSh 250,000 across various classes. This limit was set under the Policyholders Compensation Fund (PCF) regulations and applied uniformly to cases triggered by insolvency or license revocation.

Starting January 1, 2026, the new limit rises to KSh 500,000 per claim, doubling protection for policyholders in statutory management or similar events.

This adjustment covers all insurance classes without distinction. Funding for these payouts continues to derive from levies imposed on licensed insurers, maintaining a consistent mechanism regardless of the cap increase.

The structure remains uniform and levy-based. Trigger events for compensation eligibility persist as before, limited to post-January 1 instances of insurer insolvency or license loss under statutory provisions only. No expansions to other scenarios apply.