By Frankline Sunday
Insurance in Kenya has always been a hard sell to the vast majority of citizens. The sector has remained at below 4 per cent penetration since the first insurance company owned by British insurers opened an agency outpost in colonial Kenya more than 60 years ago.
Six decades later and only one in 40 Kenyans has taken a form of insurance, whether personally or as part of a group scheme.
Data from consultancy firm PriceWaterhouseCoopers (PWC) indicates that Kenyans’ uptake of insurance cover, both at corporate and personal level, remains predominantly in the motor, fire, industrial and personal accident classes.
This, notes PWC, illustrates a poor attitude towards personal insurance cover in general and contributes to the low penetration of insurance in the Kenyan market, relative to other more developed markets.
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According to the latest industry statistics from the Insurance Regulatory Authority, the rate of adoption of insurance products in the country, though growing, remains very low.
The Insurance Industry Report released in March shows that gross written insurance premiums amounted to Sh36.4 billion by the end of the first quarter of this year, a 16.7 per cent increase from Sh31.2 billion over the same period last year.
The premium income reported under life insurance was Sh10.9 billion, while general business premiums were Sh25.5 billion.
While the figures seem impressive at face value, a deeper analysis indicates that insurance companies bleed out almost as much as they rake in.
Claims incurred under general and life insurance business collectively stood at Sh11.5 billion by March 31, an increase of 4.9 per cent from Sh11 billion.
The over 45 companies collectively paid out Sh2.1 billion in commissions to agents and used a further Sh5.1billion to run their operations.
These figures have haunted players in the industry for decades and have been the reason for the collapse of at least six insurance firms and underwriters in as many years.
Concord Insurance Company, the latest victim of the unforgiving sector was placed under statutory management barely four months ago after failing to settle claims and pay its creditors.
According to several administrators of insurance companies in the country, several reasons are to blame for the challenges experienced in the industry.
“The industry suffers from low levels of penetration and the greatest reason for this is that there is a low level of awareness among Kenyans on the benefits or need for insurance,” said Association of Kenya Insurers Executive Director Tom Gichuhi.
“The other contributor ... is the perceived credibility gaps where insurance companies are not regarded as highly as banks in terms of trust,” he added.
While some of the problems that beset the insurance sector come from external factors, insurance companies have over time been blamed for being their own worst enemy.
According to Kenya Orient Insurance Managing Director Muema Muindi, cases of price competition and undercutting still persist despite being retrogressive to the growth of the industry.
Since insurance companies are many and offer largely similar products, there is little room for differentiation.
This has forced companies, particularly smaller ones, to offer low prices to gain market share, leading to cut-throat price wars and low margins.
A persistent skills gap in the labour market also weighs on the industry, forcing companies to spend heavily on acquiring and training certified professionals.
Kenya currently has a shortage of actuaries to serve in the insurance sector and a directive from the IRA for companies to have a resident actuarist continues to exert pressure on most companies.
According to CFC Life Managing Director Abel Munda, the shortage of actuarists has forced some companies to share the available professionals.
“Companies have always been hard pressed to find staff to head their various acturial departments, although the situation today has improved marginally,” he said.
Reasons for optimism
Recent developments in the insurance sector, however, indicate that underwriters and agents have reason to be optimistic of improved fortunes in the medium to long term.
Key among these is the much-awaited tabling of the Insurance Amendment Bill 2013.
“The major drafting of the Bill has already been done and we are optimistic that it will be tabled in September as is expected and probably by end of this year, we shall see the Bill signed into law,” IRA CEO Sammy Makove said.
The Bill is expected to make it easier for players in the industry to generate funds and manage their pricing to increase insurance penetration in the country.
“The purpose of the amendment to the Insurance Act was first and foremost to align it to the changes in the Constitution and update it to conform with some of the changes that have happened in the market recently,” said Makove.
The Bill will also allow banks to act as insurance agents and seek to harmonise insurance practice in the region.
The ownership of insurance brokers will be opened up and extended to citizens in the East African Community to increase firms’ capacity to raise capital.
“The IRA and AKI consulted widely in the drafting of the Bill and we are happy that most of the suggestions and concerns that we raised have been factored in the draft,” said Munda.
Muindi urged insurance company to also do their bit to improve efficiency and stimulate penetration.
“The adoption of technology to power the industry should be a matter of urgency for all players in the industry,” he said, adding that his company’s move to electronic filing of returns has cut their turnaround time from 30 days to a day.