A report by Standard Investment Bank on sector performance shows that the premium growth will remain strong in the next five years driven by increased product and distribution innovations.
Head of research at the bank Francis Mwangi said the sector will benefit from increased financial services penetration, ignited by aggressive micro-enterprises banking initiatives and explosion of mobile money transfer.
“Over the last nine years, premiums have grown but claims have remained flat. Insurance companies are actually tapping into a segment of the population that is not driven by increased claims,” Mwangi said.
The sector saw an increase in the number of listed insurance firms from three in 2010 to the current six accounting for four percent of total market capitalization at the Nairobi Securities Exchange.
The industry has witnessed improved regulation, setting minimum premiums chargeable for certain classes of business thus reducing undercutting and unfair competition.
In 2007, the regulator increased the minimum required capital to Sh300 million from Sh100 million for short term insurance underwriters, Sh150 million from Sh50 million for long term underwriters and Sh450 million for composite insurance companies.
Penetration has remained low, currently at 3.03 percent compared to 11.6 percent in South Africa.
Mwangi attributed this to negative market sentiment following closure of at least five insurance providers over the past five years due to insolvency arising from high claims.
“If you look at the last decade, we’ve increased penetration by around 150 basis points and the bulk of that has only happened in the last five years. Our projection is that we will see increased penetration over the next five years and it will be faster than we have seen even in the last decade. Why? Because the environment is conducive and supportive,” Mwangi added.
Fraudulent claims have particularly occurred in the medical and motor insurance segments.
The Association of Kenya Insurers (AKI) however is in the process of implementing a system to centralise motor data to facilitate the detection of fraudulent claims and assist in the management of underwriting process.