Why is insurance so costly in Kenya?

It is no secret that insurance in Kenya is relatively expensive. From motor vehicle to health insurance, costs are sky-rocketing due to associated risks such as increased cases of carjackings and a rise in lifestyle diseases. Every field of insurance has a reason to justify its premium charges.

However, given that the factors influencing the cost of insurance are common across the globe, why is it that the cost of insurance in other countries is not that high?

So why isit that premium rates keep rising locally? Over a two-week period, I undertook a research project to understand this situation and learnt that there is a plethora of social, political and economic factors involved.

It is worth noting that the insurance industry in the country has recorded an annual growth rate of 17 per cent over the last five years.

Most of those who seek insurance provide protection against the unexpected future losses to make sure that their assets, income, property and lifestyle are kept whole.

But a lack of trust and a negative word-of-mouth campaign has led to a relatively low insurance penetration - below 4 per cent - in Kenya, trailing countries like South Africa at 14.2 per cent, Namibia 7.5 per cent and Mauritius 5.7 per cent. This low penetration rate is further undermined by Kenya's shrinking economic growth prospects, due to terror threats and attacks which have driven away potential investors and negatively impacted on the main sectors that drive our economy.

The insurance industry in the country is faced with several challenges. These include a general lack of saving discipline, low disposable incomes, inadequate tax incentives, regulation, shortage of skills and lack of proper information about insurance.

And to some extent, it is the scale of economies for insurance companies that has an impact on re-insurers, most of who are multinational corporations.

The key reasons behind the low levels of penetration is poverty and a perceived credibility issue particularly with regard to settlement of claims. Many claims have not been honoured due to one reason or the next; usually guided by the six principles of insurance namely; insurable interest, utmost good faith, proximate cause, indemnity, subrogation and contribution.

According to the Insurance Regulatory Authority (IRA) report for the first quarter of 2014, claims incurred under general insurance and policyholder benefits under life business amounted to about Sh20 billion.

This level of low penetration considering that there are 47 licensed companies along with an equally large number of insurance brokers, creates a lot of competition which leads other players to illegally undercut premiums, despite warnings from the regulator.

This under-cutting attracts a few clients but when claims surface, most agencies resort to excuses to avoid honouring them as re-insurers also take a firm stand against such malpractice.

Claim settlement is also low due to absence of skill-sets for investigating agencies. The number of qualified surveyors is lower, existing resources are overstretched and delays lead to budget overflows and additional operational costs.

Actually, high premiums are as a result of no sharing of information among insurers. The challenge with this is that a dishonest policyholder can make double claim from different issuers since there is no information pool where such information can be immediately traced and verified.

Good corporate governance is a key challenge to many insurance companies. Some insurers lack proper management structures and succession strategies due to lack of transparency and accountability which has previously led to the collapse of a number of insurers.

This has led to policyholders losing their money in the process and thus making the public lose confidence and trust in the industry.

Lack of specialised insurance skills and high-level training has hindered the growth of the industry. Dishonest claims have also hampered business in Kenya, such as double claims as well as falsifying evidence to try and make claims.

These factors have greatly damaged the image of the insurance sector in Kenya, and have also contributed to the high premium costs.