Question of low insurance penetration and obvious market opportunity


In their 2014 annual report, the Association of Kenya Insurers (AKI) reports that as at December 2014, there were 49 operating insurance companies, 198 insurance brokers and 5,155 insurance agents in Kenya.

The industry generated a gross earned premium of Sh132.07 billion, up 23.2percent from Sh107.19 billion earned in 2013. This, unusually high growth is attributed to government insuring civil servants and the disciplined forces in 2014.

The industry recorded a profit of Sh15.46 billion before tax in 2014 compared to Sh17.79 billion made in 2013.

Tellingly, the report does not discuss the reason why higher gross earned premium yielded lower profits. But the more glaring fact is that compared to other sectors, single entity companies like Safaricom, (Sh32 billion profit), KCB (Sh16.8 billion), among others, outperform the entire group of 49 insurance companies every year! Unfortunately, the growth problem is not entirely attributable to the insurance firms. In my view, it points to a worrying fact that Kenyans are not adopting insurance products as savings vehicles.

The overall insurance penetration (gross premiums as a percentage of GDP) in 2014 was 2.93pc compared to 3.44pc in 2013. The decrease in penetration is due to the rebasing of GDP in 2014. The average penetration in Africa is 2.8pc but the disparities are huge.
South Africa, which accounts for 87pc of life insurance written in the whole of Africa, the insurance penetration is at 14.1pc. Namibia is second highest in Africa at 7.2pc, Mauritius 6pc, and Nigeria, with a huge population of 178 million people, insurance penetration of just 0.3pc.

Evidently, there are both cultural and technological reasons why insurance penetration is low in Africa. But South Africa and Namibia would seem to suggest that the challenge is more technological than cultural. Kenya’s insurance industry needs to examine both, with a deliberate, concerted bias to technology as insurance delivery channels.

Cultural attitudes
Insurance is the concept of transferring risk from yourself to a third party “underwriter” for an agreed fee. Africans, understand the need to transfer cost from an individual to the whole community but they accept to do this only after the catastrophic event has already occurred, not earlier and certainly not for a fee; it is entirely voluntary.

In Kenya, we call it Harambee; our panacea for every tragedy, every socio-economic challenge. Medical bills are a classic example. We raise money for medical bills after the person dies in hospital, not before.

The system is inherently expensive, very inefficient and leaves those involved traumatised. The notion that we can contribute to “Harambee” before the tragic event happens is alien to most of us but the insurance industry needs to invest heavily to that form of civic education. Government can help by making the cost of such civic education to the industry tax exempt.

The law
Motor insurance accounted for 39pc of gross premiums in both 2013 and 2014. Motor and medical insurance accounted for 64pc of gross premiums. There is a good reason why motor insurance makes the largest single contribution to gross premiums. Motor insurance is by and large compulsory via the third party liability law. Medical insurance accounts for 25pc of premiums; again because employers are required by law to provide medical benefits to employees.

Hence motor and medical make the highest contribution to gross insurance premiums precisely because the law makes them effectively compulsory. Motor and medical insurance are compulsory in most of the developed world. It should be made compulsory here in Kenya too, for everyone including the informal sector! We must deliberately and resolutely abandon Harambee.

The insurance industry is rather too traditional; it has not embraced new technologies as aggressively as other sectors. That’s why 49 companies are no match for a single company in telecommunications, or banking. Numbers do not lie!

The insurance industry needs to take a long hard look at new technologies to see how they could help change cultural mindsets, raise the fear of risks, and facilitate transfer of risks, institute insurance contracts, premium payment and claims settlement.

I am glad that this week, British-American Investments Company (Kenya) Limited (Britam) managed to launch an innovative product that will allow retirees to re-invest their retirement benefits for higher and more secure returns. A week ago, we also saw Cannon Assurance partner with Safaricom, CBA and an international mobile-Health service provider, Hello Doctor, to launch Sema Doc, an affordable health care solution, that comes loaded with a micro insurance, Hospital Cash Benefit.

However, beyond these innovations more needs to be done. The insurance industry has no excuse either for not securing significant funds from those who are keen on savings accounts. The protection component, (the risk taking business), may be a hard sell to us Africans. So get the law to help you in that but you are best placed to help people invest and prosper. That should not be too hard for you, so do it!

Ultimately, I have no doubt that equity investments in Insurance companies, will in the long run provide attractive returns, but only if the players embrace the obvious market opportunities.

(Ngugi is a consultant in public affairs and policy with an interest in economic markets development. Email

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