Breaking the barriers to insurance penetration in Kenya

NAIROBI: In its latest annual report, the Association of Kenya Insurers (AKI) noted that as at December 2014, there were 49 insurance companies, 198 insurance brokers and 5,155 insurance agents in Kenya.

The industry generated gross premiums of Sh132.1 billion, up 23.2 per cent from Sh107.2 billion in 2013. This unusually high growth is attributed to the Government insuring civil servants and the disciplined forces in 2014.

The industry recorded a profit of Sh15.5 billion before tax last year, down from Sh17.8 billion in 2013.

Tellingly, the report does not discuss the reason higher premiums yielded lower profits. But the more glaring fact is that compared to other sectors, single entity companies like Safaricom, (Sh32 billion profit) and KCB (Sh16.8 billion) outperform the entire group of 49 insurance companies every year!

Unfortunately, the growth problem is not entirely attributable to insurance firms. In my view, it points to the worrying fact that Kenyans are not adopting insurance products as savings vehicles.

The overall insurance penetration (gross premiums as a percentage of GDP) in 2014 was 2.93 per cent, compared to 3.44 per cent in 2013. The decrease in penetration is due to the rebasing of Kenya’s GDP in 2014.

The average penetration in Africa is 2.8 per cent, but the disparities are huge. In South Africa, which accounts for 87 per cent of life insurance in Africa, insurance penetration is at 14.1 per cent. Namibia is second highest in Africa at 7.2 per cent. Nigeria, with a huge population of 178 million people, has insurance penetration of just 0.3 per cent.

Evidently, there are both cultural and technological reasons insurance penetration is low in Africa. But South Africa and Namibia would seem to suggest that the challenge is more technological than cultural.

CULTURAL ATTITUDES

Insurance is the concept of transferring risk from yourself to a third-party ‘underwriter’ at an agreed fee. Africans understand the need to transfer cost from an individual to the whole community, but they seem to agree to do this only after a catastrophic event has occurred, and certainly not at a fee.

In Kenya, we call it harambee. Medical bills are a classic example — we raise money after a person dies in hospital, not before.

The system is inherently expensive, very inefficient and leaves those involved traumatised. The notion that we can contribute to a harambee before a tragic event happens is alien to most of us, but the insurance industry needs to invest heavily in this form of civic education.

Another way to improve penetration is through the law. Motor insurance, which accounted for 39 per cent of premiums in both 2013 and 2014, makes the largest single contribution because it is compulsory via the third-party liability law. Medical insurance accounts for 25 per cent of premiums, again because employers are required by law to provide medical benefits to employees.

Hence, motor and medical insurance make the highest contribution to gross premiums because the law makes them compulsory. This should be extended to the informal sector. We must abandon the harambee mentality.

The other solution is technology. The insurance industry is rather traditional. It has not embraced new technologies as aggressively as other sectors, which is why 49 companies are no match for a single company in telecommunications or banking.

The industry needs to consider how new technologies could help change cultural mindsets, facilitate transfer of risks, and institute contracts, premium payments and claims settlements.

Britam has managed to launch an innovative product that will allow retirees to re-invest their retirement benefits for higher and more secure returns. A week ago, Cannon Assurance partnered with Safaricom, CBA and an international mobile health service provider, Hello Doc, to launch Sema Doc, a solution that comes loaded with microinsurance.

However, beyond these innovations, more needs to be done. The insurance industry has no excuse for not securing significant funds from those who are keen on saving.

The writer is a consultant on public affairs and policy.

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