NAIROBI, Kenya, Apr 4-The government has asked players in the insurance industry to suggest necessary amendments to the insurance Act that would help increase insurance coverage in the country.
Kenya’s overall insurance penetration is still very small, at 2.6 percent, compared to other emerging economies such as South Africa which stands at 14.6 percent and India at 3.7 percent.
Deputy Prime Minister and Minister for Finance Uhuru Kenyatta noted that although the insurance industry had registered marginal growth in penetration – from 2.5 percent in 2006 to 2.6 percent in 2007- further reforms would enhance insurance coverage among the erstwhile, unserved groups.
“I challenge the industry to follow the trends in the banking and mobile phone sector which have extended their services to a large segment of the population. The industry should make insurance affordable to the ordinary Mwananchi,” Mr Kenyatta said.
The Finance boss made the remarks in a speech read on his behalf by the Director of Economic Affairs, Justus Nyamunga during the Association of Kenya Insurers (AKI) Agents of the Year Awards dinner held at a Nairobi hotel.
Mr Kenyatta described recent reforms which included formation of the Insurance Regulatory Authority (IRA) and increase of minimum paid up capital for insurers, as having resulted into renewed interest in life insurance due to its increasingly important role of providing protection and mobilizing long term savings.
“The government would like to have a situation where the role of life insurance as a unique risk transfer device and investment tool is recognized by the entire population,” Mr Kenyatta said.
He noted that while IRA had been credited with improving operational efficiency and effectiveness, an increment in paid up capital to a minimum of at least shs300 million for general insurance, sh150 million for life insurance and Sh450 million for composite continues to increase public confidence in insurance companies.
“In particular, the newly anticipated amendments to the Insurance Act will facilitate a shift in product development from focusing on the top end market segment but rather, evolve new innovative products that meet the rising demand for micro-insurance services,” the Finance Minister said.
He said the ministry would facilitate the recommendations of a report by an IRA taskforce on the PSV Class of business to inform new strategies of sustaining the growth of motor insurance in Kenya.
The announcement comes at a time when insurance companies are struggling to reduce costs associated with fictitious claims, mainly from the motor insurance sector.
Mr Kenyatta further called on insurers to explore opportunities presented by bancassurance through IRA and the Central Bank of Kenya (CBK) so as to bring the benefits to the Kenyan public, just as it has been demonstrated by success stories in Europe.
Spain for instance, realised up to 70 percent of its new life and pensions business sold through banks.
”Banks with their brand image and an existing large customer database offer a natural market for insurance products. Insurance companies with the cooperation of banks can leverage this "trust" factor. The bancassurance market in the country is untapped and the opportunities for both banks and insurance companies are immense,” he said.
By maintaining constant training for life insurance agents and the masses on benefits of insurance, Mr Kenyatta observed that IRA and AKI could contribute towards breaking the hostility that insurance agents face as they strive to enlist new policy holders.
Speaking at the same function AKI Chairman Nelson Kuria urged the Finance Ministry to move expeditiously to forestall collapse of another underwriter considering the myriad challenges faced by PSV underwriters.
Mr Kuria who is also the Managing Director of CIC Insurance said AKI will partner with IRA to improve the industry image, boost professionalism and increase life insurance coverage across the country as a way of sustaining the goodwill the industry has been enjoying in recent times.
In collaboration with IRA, Kuria said AKI would continue to keep a close watch on effects of the global financial crisis and its likely impacts on the local economy and to the insurance industry in particular.
Last November, IRA and AKI constituted a taskforce consisting of its senior management staff to track trends in the global crisis.
The Chairman further lobbied the finance ministry to consider its budgetary proposal which advocates for amendments to the Income Tax Act.
The insurance industry is pushing for the ministry to allow premiums paid on life and health insurance to be tax deductible from chargeable income up to 30 percent of the gross income.
This, Mr Kuria noted, would encourage growth, reduce poverty and improve the health of Kenyans.