IMPACT OF PROVISIONS OF LEGAL NOTICE NUMBER 161 OF 2003 ON THE UNDERWRITING AND CLAIMS PROCESSING BY PSV INSURERS IN KENYA

Abstract

The purpose of the study was to determine the impact of Legal Notice Number 161 of 2003 popularly known as the “michuki” rules with respect to Kenyan PSV insurer’s underwriting and claims processing. The study focused on ‘Matatus’ where there was little enforcement and compliance of the law prior to the introduction of the legal notice. In 2003, the new NARC government introduced reforms to PSV operation through Legal Notice 161 whose aim was to reduce PSV related accidents, improve commuter safety, stamp out illegitimate drivers and restore order to the PSV sector. The study objective was to determine how these provisions of Legal Notice Number 161 affected the underwriters of PSV insurers in Kenya. The literature review explored concepts in risk and insurance, reviewed underwriting considerations in commercial motor vehicles, moral hazard and adverse selection challenges in automobile insurance, commercial motor vehicle insurance claims process, and the commuter transport sector in Kenya. The study looked at the situation before and after the implementation of legal notice number 161. The study used an exploratory survey design. The population of the study was confined to six insurance firms which insured PSV. The primary data was collected by means of a self-administered questionnaire that employed open and closed ended questions. Descriptive statistics consisting of the arithmetic mean, standard deviation, and graphical methods were used to present the findings. The study concluded that PSV insurers in Kenya placed a lesser emphasis on the conduct of the driver and the crew. After the implementation of this legal notice number 161 greater emphasis was placed on risk assessment of the mechanical conditions of the vehicles. On the other hand, claims related factors and fraud detection were top priorities before and after the implementation of legal notice number 161. The study findings recommended Kenyan government consistency in enforcing compliance of the LNN 161 of 2003 regulations.