Confusion as Directline is shut and open in less than 24 hours

Piece by: MARTIN MWITA
News

• Directline has in recent times struggled with low capital

• Directline was founded by SK Macharia’s late son, John Gichia who died in a road accident six years ago

Directline Assurance announces closure, terminates staff contracts
Image: courtesy

The decision by Direcline Assurance to close down has sent the matatu industry into panic, as an alleged family feud threatens to sink the insurance company.

Royal Credit Limited, which owns the insurance company on Monday, announced the closure of the underwriting business, termination of employees’ contracts and the immediate dissolution of its board, as it moves to take over all assets owned by Directline.

Chairman S.K Macharia faulted IRA for failing to take action against former directors who are said to have mismanaged funds to the tune of Sh7 billion.

Directline closed June last year with Sh1.66 billion gross premiums from motor commercial PSV covers, giving it a 60.79 per cent market share in the sector.

IRA yesterday dismissed the move to close the insurance company.

“The purported actions are null and devoid of any legal effect and as such the insurer continues in full operation as licensed and approved by the Authority. The purported transfer of the assets of the insurer to any third party is therefore null and void ab initio,” IRA Commissioner of Insurance and CEO, Godfrey Kiptum, said.

He said all policies issued by Directline Assurance Company Limited remain in full force and effect and the insurer remains liable for any claims arising therefrom.

“All policyholders of the insurer may continue with their operations in accordance with their insurance contracts. The Authority has the sole statutory mandate to approve, suspend or cancel the operations of any insurance company in Kenya and this duty cannot be usurped by any unauthorised party,” Kiptum added.

IRA has since placed the firm “under heightened surveillance”, and will take necessary steps as may be appropriate, pursuant to the provisions of the Insurance Act, CAP 487 Laws of Kenya, to ensure sustainability of the insurer and protection of insurance policyholders’ interests, it said.

The turbulence at Directline is however being heavily blamed on a succession fight with a plot to take over the company by some directors and shareholders, a move that has prompted the media mogul to make the move.

SK Macharia’s late son, John Gichia who died in a road accident six years ago, founded Directline and there have been court battles to control his estate, then estimated at about Sh1.2 billion. He was also the founder of Triple A Finance and other companies.

According to insiders, there has been a push to dislodge S.K Macharia who is also a shareholder in the insurance company, a fight that is also in court.

Directline has in recent times struggled with low capital amid falling profits in the wake of increased claims.

Its profits for the year 2023 dropped to Sh79.6 million from Sh309.6 million in 2022, as operating expenses including claims wipes out the Sh4.5 billion revenue earned during the year. Its total liabilities stood at Sh7.5 billion against an asset base of Sh8.2 billion.

The closure of Directline, as indicated by its parent company, has shaken the Public Service Vehicles industry, as the company is the biggest insurer.

Speaking to the Star yesterday, Matatu Owners Association Albert Karakacha called on the government to intervene and ensure policy holders are safeguarded even as the company’s interest are looked into.

“It has brought a lot of confusion in the industry where the company announced closure but IRA says it is still in operations. We hope this issue can be addressed and the industry well safeguarded,” Karakacha said.

There are also concerns of increased fraud in the industry, which MOA blames on rogue lawyers, who file for “fake” claims, a move that is negatively impacting insurance companies among them Directline.

“They are known. What we are asking LSK (Law Society of Kenya) is take action against these people and end the mess,” Karikacha said.

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