Kenya can mobilise investments through life insurance

November 17, 2015
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Seated from left, Dr. Judith Tyson author of the report, Jane Kiringai snr economist with world bank and far right Outgoing British High Commissioner appreciate comments from Prudential Africa CEO Dr. Matt Lilley(second right)/CFM
Seated from left, Dr. Judith Tyson author of the report, Jane Kiringai snr economist with world bank and far right Outgoing British High Commissioner appreciate comments from Prudential Africa CEO Dr. Matt Lilley(second right)/CFM
NAIROBI, Kenya, Nov 16 – Kenya has the potential to mobilise large domestic savings for long term local investment through life insurance according to a new report by the Overseas Development Institute and Prudential Life.

The report rates Kenya as the most developed among lower middle-income economies in sub-Saharan Africa in life insurance with long-term underwriting assets in Kenya accounting for 8.8 percent of Gross Domestic Product (GDP) compared to 3.5 percent for an average lower-middle-income country.

This according to the report offers an opportunity to create high and low skill employment especially with Kenya’s vibrant agent distribution, complimented by mobile services.

“The success of Mobile Money and Agent distribution in the country could be used to increase penetration of Life Insurance in the country that could be used for development” said Research Analyst at Oversees Development Institute Judith Tyson.

Tyson says savings from households provide a stable, low cost and low risk source of financing compared to international private capital flows.

“However, savings mobilisation is constrained; sub-Saharan Africa savings rates remain low with a median savings rate for Africa of 10.2 percent of GDP, the lowest for any region globally. The main important constrains including low income and financial access to formal financial services,” the report states.

The report says supportive policy is needed to achieve these goals that include optimizing market structure and regulation including foreign entrants and agency distribution.

“One policy option is to develop domestic asset markets that are suitable for life insurance funds. The asset market most likely to prove successful – and of great benefit to host economies – is government bonds. This is because of their compatibility with the criteria for life insurance investments including relatively low risk, long maturities and reliable income,” the report indicates.

The report highlights that life insurance premiums in Kenya are too expensive for the market and urged market players to come up with products tailor made for the low income earners in the country.

“We need to have cheap and low cost premiums committed to term investments of about 20 years,” Tyson added.
Kenya’s insurance sector is also dealing with trust and literacy issues on insurance according to the report.

According to Bima Intermediaries Chairman Washington Ndegea, life insurance premiums vary with companies with the lost premium at Sh2,500 per month.

Insurance penetration in the country dropped to 2.93 percent in 2014 compared to 3.44 percent in 2013 according to the 2014 Industry report by the Association of Kenya Insurers (AKI).

The report attributes the drop to the rebasing of Kenya’s Gross Domestic Product (GDP) in the period under review.

Overall gross written premiums increased by 20.3 percent in the period under review to Sh157.1 billion compared to Sh130.65billion in 2013.

Gross written premiums for non-life insurance stood at Sh100.24 billion against 86.64 billion in 2014 representing a 15.6 percent growth while that for the life insurance was at Sh56.7 billion against 2013’s Sh44.1 billion, a 29.4 percent growth.

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