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Kenya outperforms peers in life insurance business

By Dominic Omondi | November 18th 2015 at 00:00:00 GMT +0300

From left: Judith Tyson, representative of the Overseas Development Institute, Jane Kiringai, senior economist at the World Bank, Matt Lilley, CEO of Prudential Africa and Christian Turner, British High Commissioner to Kenya, display the insurance report.[PHOTO: DOMINIC OMONDI/STANDARD]

Kenya’s life insurance business penetration has outperformed many of its peers in middle and low-income countries.

According to a just released insurance report, Kenya’s life insurance assets, which accounts for 8.8 per cent of the country’s Sh6.2 trillion Gross Domestic Product (GDP), is rated higher than that of Uganda, Nigeria, Tanzania, Ghana, Ethiopia, Vietnam, Philippines and Nigeria.

The report by the Overseas Development Institute (ODI) on life insurance markets in Sub-Saharan Africa shows that Kenya has a well-developed insurance market.

The report notes that, in 2010, life insurance assets had reached 8.8 per cent of GDP compared to 3.5 per cent for an average lower-middle-income country. Annual premiums reached 1.06 per cent of GDP compared to 0.26 per cent for an average lower-middle-income country.

“Kenya has done very well in terms of financial service development and life insurance development,” explained Judith E. Tyson, the author of the report.

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She reckons that Kenya is also one of the candidates to emerge as a financial hub for Africa but much needs to be done to reach the levels of South Africa, Mauritius and Namibia, which enjoy Life Insurance penetration of between 11 and 4 per cent of their GDP.

The CEO of UK-based Life Assurance firm, Prudential Africa, Matt Lilley said that Kenya has a “broad life insurance industry” and was by far the best in Sub-Saharan Africa.

Prudential Life Assurance Kenya recently returned to the Kenyan market after a 25-year hiatus by acquiring Shield Assurance. The company pledged to create over 4,000 high-quality jobs by 2020. The report also indicates the need to address some of the thorny issues in life insurance business, including low-penetration due to lack of a developed government bond markets and encourages risk sharing and through Public-Private Partnerships (PPP).

It notes that life insurance requires investment in low to moderate risk, with stable income flows. “This calls for greater pool of suitable investments in the region which can be addressed by the two policies.”

It notes that these are the policies needed to address requirements for life insurance—investment in low to moderate risk, with stable income.

However, figures from the Insurance Regulatory Authority shows that Kenya’s insurance industry continues to be non-life business driven, which accounted for 66.4 per cent of the total premiums by the end of June 2015.

A big chunk of the industry’s investment during this period, about 40 per cent, went to Government securities, 17 per cent were in property and 16 per cent in ordinary shares. However, Tyson noted that the industry’s position looks good compared to its economic position. The insurance industry invested about 15 per cent in deposits and three per cent in loans in the second quarter.

The total investments for the industry during the second quarter of 2015 amounted to Sh373.53 billion, which represents 82 per cent of the industry’s total assets.

These had grown by 17.1 per cent, compared to the previous year’s investment of Sh318.89 billion. The investments under life insurance business amounted to Sh240.17 billion (64.3 per cent of total industry investments), while general business investments stood at Sh133.36 billion (35.8 per cent of total investments for the industry).

Although there was concern that cultural beliefs and practices might be holding back uptake of life insurance products in the country, British High Commissioner Christian Turner, said that the insurance industry could take a cue from M-Pesa and develop products that resonate well with the low end consumers. The insurance industry was also urged be more innovative in its products and distribution channels.

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