Exemption from Insurance Premium Levies

Introduction

Through Legal Notice No. 224/2022, the Cabinet Secretary for the National Treasury and Economic Planning exempted insurers transacting in permanent health, annuities and all pension classes of life insurance from the Insurance Premium Levy (IPL) for a period of five (5) years with effect from 1 December 2022. The levy is provided for under Section 197A of the Insurance Act and previously applied to every registered insurance business in Kenya. We provide an analysis of the implications of this exemption.

Analysis

Prior to the legal notice, insurers were subject to IPL of 1% on the gross direct premiums in accordance with Regulation 51 of the Insurance Regulations. To comply with this requirement, insurers were required to file IPL returns and remit the dues payable to the Insurance Regulatory Authority (IRA) Fund. Following the 1 December 2022 Legal Notice, the following long-term insurance businesses will be exempt from IPL for a period of 5 years:

i. Permanent health insurance: This refers to life insurance that provides coverage for the duration of an individual’s life. Unlike term-life insurance, which provides coverage for a specific term, permanent life insurance provides coverage that does not expire provided the premiums are that does not expire provided the premiums are remitted in accordance with the agreed terms.

ii. Annuities: These are long-term investment agreements between insurance companies and individuals in which the individuals make periodic or lump sum payments in exchange for periodic disbursements or income either immediately or at a future date.

iii. Pension classes of life insurance: These are life insurance products that provides regular income payments to the policy holder during their retirement years. Under this cover, the policy holder makes premium payments to the insurance company while working, and the insurance company uses those premiums to build a retirement fund. 

The exemption does not apply to other classes of insurance businesses outside the 3 listed in the legal notice.

Conclusion

The IPL exemption will reduce compliance costs for insurance companies involved in annuities, permanent health and life insurance pension policies. This is likely to boost growth of the insurance sector which has been impacted by the economic slowdown that has impacted jobs and income.