Kenyan insurance companies are planning, in collaboration with the Insurance Regulatory Authority (IRA), to develop their own customs bonds verification platform after a falling-out with the Kenya Revenue Authority (KRA)-linked software supplier Kenswitch over pricing and concerns over procurement of the financial services company.
The industry’s lobby, the Association of Kenya Insurers (AKI), says plans are underway for the industry in collaboration with the IRA to develop its own system that members will be using without pay.
“We are no longer going to use the Kenswitch platform. We are going back to the manual process and the verification of the bond is going to be done by insurance companies with staff from the Insurance Regulatory Authority (IRA) just to give KRA the confidence that the process of verification that we had to use the Kenswitch platform is, for the time being, going to be carried out by staff at IRA as we develop our own platform as insurance companies in conjunction with the insurance regulatory authority,” AKI CEO Tom Gichuhi said.
“We want to come up with a platform where members will not be paying. We will agree with IRA on how we can come up with a platform that is going to be integrated with KRA system so that members can use it for bond verification. It will take some time but, in the interim period, we are using manual system.”
Customs bond insurance is a guarantee to the KRA that insurers will be held liable for all duties, taxes, fees, and penalties associated with goods if importing firms default on payment. KRA only clears the goods after evidence of the insurance-backed bonds.
Insurance companies complained that Kenswitch Ltd, a company KRA brought on board in 2018 to provide a platform for submitting the original hard copy of the bonds to the taxman before goods can be cleared, has been providing the service free but is now demanding 0.125 percent of the value of the customs bond.
Importers suffered delayed clearance of thousands of shipments in September, after Kenswitch introduced the fees on the processing of customs bonds insurance, with the underwriters boycotting the payment on the grounds that it would add to their operational costs and drive many out of business.
Kenswitch says it had been absorbing the costs to the tune of Ksh2 million ($15,465) per month. But insurers say the cost of the platform is prohibitive and how Kenswitch was procured by KRA to provide the service is a matter of concern.
“That cost was going to be very high, but it was not so much about the cost, it was so much about how that whole process came into being. We should have been involved from day one if there was to be a platform and if there was to be a middle person coming in between KRA and insurance companies in this whole process of verification of bonds and a process that was going to cost us money,” Mr Gichuhi said. “We should have been involved from day one so that we all agree that that is the route to go.”
Kenswitch says the understanding was that the service was to be offered for free during the piloting period of three months and thereafter be commercialised after it (service) was embraced by the entire industry, but it has been forced to absorb all the costs of administering the service after insurers declined to pay for it.
George Oketch, business development manager at Kenswitch, said that Kenswitch is a private company, not a publicly funded company, “and the impression that they got over time is that Kenswitch will provide that service for free just because Kentrade previously provided that service for free.”
“At that time when Kenswitch started offering the service the understanding was that it would be implemented on a proof-of-concept basis for three months and once the industry fully on boards the service and they are happy with it then we can commercialise it. There was that engagement (between Kenswitch and industry players).”
According to Kenswitch there were other companies seeking to provide the customs bonds verification platform, but KRA picked Kenswitch.
“It is not just Kenswitch that provided the solution, there were a couple of other institutions that provided their own, too, and Kenswitch was just one, but KRA opted to use the Kenswitch one because it provided all the metrics that were required,” Mr Oketch said.
KRA, on the other hand, says it has no contractual agreement with Kenswitch and has no idea whether the firm has been receiving any payment for the use of the system.
In an emailed response to Business Daily in September, KRA said the Kenswitch system was integrated into the integrated customs management system (iCMS) on the recommendation of the IRA to facilitate the smooth implementation of a government directive to give marine insurance business to local insurers.
“KRA has no visibility of any contractual agreement between Kenswitch and the insurance industry and therefore cannot comment on whether Kenswitch has been receiving any payment. KRA has written to the IRA to provide a solution to the insurance industry to enable clients to execute online customs bonds,” said Lilian Nyawanda, KRA commissioner of customs and border control.
Insurers say Kenswitch started charging the fee in November 2023 and has switched off the system, demanding that the underwriters and banks start paying.
