Firms warm up to usage-based insurance to grow penetration

Under the pay-as-you-drive model, riskier drivers pay higher premiums. [Ken Gachuhi, Standard]

At the recent CEOs Summit for insurance sector leaders in Nairobi, the Insurance Regulatory Authority (IRA) of Uganda Alhaj Lubega revealed that he has initiated conversations with underwriters in his country to consider usage-based products.

He argued that some products currently in the market do not have a value proposition to modern-day consumers.

He gave an example of motor vehicle insurance.

“Someone has five or 10 cars, why should they continue to pay motor vehicle insurance for all of them when they can only drive one car at a time?” he posed.

Usage-based insurance is vehicle insurance that adjusts premiums based on the driver’s behaviour.

It is also referred to as pay-as-you-drive pay how-you-drive or mile-based auto insurance.

It typically uses telematics technology to monitor factors like speeding, acceleration, harsh braking, mileage, and driving times, potentially rewarding safe drivers with lower premiums.

But while one needs insurance to have their cars on the road, Mr Lubega pointed out that not all of them are exposed simultaneously.

“So why can’t I pay for only that time I am using the car and when it’s parked, its insurance ceases?” he questioned.

“You want me to pay for the full year, but I don’t want to waste that money.”

It is such changing consumer needs that are forcing underwriters to tweak their products using technology to make them more attractive to not only existing customers but also potential ones.

While usage-based insurance is being discussed in Uganda for possible adoption, some players in Kenya have embraced this approach, which explains why penetration in the country is at 2.2 per cent, according to a Deloitte report compared to below one per cent for Uganda and Tanzania.

CIC General Insurance, a leading motor vehicle insurer in the country, in April unveiled Easy Bima, a monthly motor vehicle cover.

This product allows policyholders to pay their cover in monthly instalments instead of the usual lump sum at the beginning of the year.

In an interview with The Standard, CIC General Insurance Company Managing Director Fred Ruoro discussed how the firm has embraced digital platforms, selling up to 200 policies in a single day.

Initially designed for motor vehicle owners, the platform now offers health, student personal accident, and golfer’s insurance policies.

Mr Ruoro emphasised the need to digitise the claims process, stating: “There is no point in selling digitally if the claims process remains manual.”

The platform simplifies insurance purchasing, especially for clients who need coverage quickly. For example, those clearing vehicles from the Mombasa port can buy insurance immediately without dealing with complicated details.

The digital product provides all the necessary information, allowing clients to easily compare third-party and comprehensive coverage options, along with flexible monthly payment plans.

“If you buy insurance for this month, we shake hands. I don’t know if you’ll return next month. But if you have a claim, you must pay the remaining premiums for the full year,” Mr Ruoro explained, adding that it’s still a better option than going uninsured.

“The platform demonstrates how technology can simplify traditionally complex insurance processes, making them more accessible.

A monthly motor vehicle cover aligns with many consumers’ pay schedules, and digital access allows policies to be purchased or reviewed at any time without visiting an agent.”

Mr Ruoro acknowledged that one of the biggest challenges remains the upfront cost of insurance, leading many to opt for basic third-party coverage.

“The buying process is tedious and requires commitment, often involving multiple phone calls,” he noted.

By contrast, a streamlined, online system where consumers can purchase home insurance for as little as Sh3,000 with a few clicks is far more appealing than filling out extensive forms.

Uganda IRA boss, Mr Lubega, echoed these sentiments, emphasising that insurance companies must embrace big data, artificial intelligence, and machine learning.

“Why should people wait a month for a policy document? Why not have technology send it instantly, with clear terms and conditions?” he posed, pointing out that fintech and insuretech firms are becoming serious competitors to traditional underwriters.

As insurers move to digital platforms, data security becomes a key concern. Data Commissioner Immaculate Kassait urged insurance companies to allocate resources toward data protection, hire dedicated officers, and train staff to handle sensitive information.

CIC boss Mr Ruoro noted that digital processes make it easier to safeguard data: “It’s simpler to protect digital information, like medical details, than physical forms.”

The adoption of technology is transforming the insurance landscape, he added, and is helping companies keep pace with consumer needs while addressing challenges like security and competition from fintech disruptors.