However, the chairman of the Development Committee of International Co-operative and Mutual Insurance Federation (ICMIF) and CEO of the CIC Insurance Group Nelson Kuria believes that innovation has been key in unlocking the potential of micro-insurance in the country.
“Though innovation in the microfinance space has exponentially increased the number of banked Kenyans, product pricing and high administrative costs of offering micro-insurance have largely stifled its development,” he explained.
Kenya has an untapped potential target market for micro-insurance of up to 11 million people; this is according to a study by the Centre for Financial Regulation and Inclusion (Cenfri) based in South Africa.
Despite the high poverty level in the country, 53 percent of Kenyans have incomes between Sh170 per day and Sh900 shillings, representing 10.8 million adults.
Kuria emphasised that the success of any micro-insurance product depends on whether the premiums are designed to accommodate the policyholder’s irregular cash flows, choice of distribution channels that can manage the entire customer relationship, as well as policies that carry limited screening requirements.
According to underwriters of various innovative micro-insurance models, a conservative estimate of the voluntary micro-insurance market in Kenya is 150,000-200,000 policyholders.
The Cenfri Survey indicates that if the users of formal credit life insurance policies through banks and through savings and credit co-operatives (SACCOs) and MFIs – a segment where CIC leads – are added to this number, the estimate increases to 650,000-700,000.
This adds up to slightly more than 3 percent of the Kenyan adult population.
Kuria pointed out that about 85 percent (or 3.9 million) of Kenyan adults who have bank accounts do not currently have any form of insurance product.
CIC, the leading provider of micro insurance in the region, is one of the companies capitalising on strategic partnerships with Banks, Saccos and Monetary Financial Institutions s to increase micro-insurance through bancassurance.
“There is a need to recognize the role that mutuals, co-operatives and other community-based organizations (MCCOs) can play in providing access to insurance services, such organizations can effectively function as distributors supporting premium collection, as part of the claims assessment process and also as the owners of a group insurance product,” he explained.
“The company has played a pioneering role in development of products targeting the micro market – the micro health and disability package for the low income earners family life cover, livestock and crop insurance, weather index-based insurance through collaboration with World Bank and Rockefeller Foundation, and a small and micro-businesses combined cover providing protection against death, fire and theft,” he added.
Last year, the firm launched M-Bima, an insurance premium payment instrument that rides on mobile money transfer platforms such as M-PESA in a bid to reach the mass market.
Policy holders with the group can now remit as little as Sh20 per day premium payment through their cell phones.
“This is one of the solutions to the challenges involved in penetrating the low-income market and developing cost efficient insurance distribution and payment mechanisms,” Kuria explained.
“It is estimated that there is a possibility of expanding up to three times the current conservative estimated size of the micro-insurance market. If only 1 million M-PESA users and 1 million Kenyans with bank accounts who are currently uninsured bought insurance through these channels, the market size would increase by more than three-fold to 10 percent of Kenyan adults,” he revealed.
CIC Insurance Group is targeting premium income of Sh10 billion by the end of 2012, and Kuria revealed that huge part of this will be generated from the micro markets.