How to sustain your insurance cover during tough economic times

In an unpredictable world filled with risks and economic uncertainties, insurance and reinsurance play a key role in safeguarding individuals and businesses.

Insurance provides financial protection against unforeseen events, while reinsurance acts as a safety net for insurers, enabling them to effectively manage risks.

However, with the high cost of living and challenging economic conditions, it is crucial to explore strategies to manage insurance needs during these hard times.

Some clauses in the Finance Act 2023, such as increased excise duties on goods and services and the 16 per cent value-added tax (VAT) on insurance compensation, may exacerbate the economic difficulties currently being faced by consumers.

These additional costs could further strain individuals’ financial well-being, making insurance coverage less accessible and unaffordable. As a result, it becomes essential to understand how insurance, reinsurance and personal financial resilience intersect to navigate these challenges effectively. Still on the Finance Bill 2023, a new sub-section has been added to section 17 of the VAT Act. Under this sub-section, insurance customers are required to pay a 16 per cent tax on the compensation they receive from insurers on any paid claim.

Unfortunately, this move is expected to negatively impact the appeal of insurance in a market with a penetration rate of below three per cent. To address these challenges, understanding the interplay between insurance, reinsurance and personal financial resilience becomes paramount. However, the increasing cost of living and burdensome taxes have made insurance coverage less accessible and unbearably expensive for many individuals and businesses. In such circumstances, reinsurance emerges as a pivotal solution to mitigate the challenges posed by the high cost of living and taxes.

By sharing risks, enhancing stability, and extending underwriting capabilities, reinsurance allows insurers to manage major or catastrophic losses more prudently, maintain financial equilibrium, and expand their capacity to underwrite policies without compromising protection.

While the current landscape presents challenges, there are expansion opportunities for insurance firms. The rising gross domestic product and household income, as outlined by Deloitte in the Insurance Outlook Report 2023, will lead to increased demand for insurance products.

To navigate the insurance landscape, Kenyans should assess their insurance needs based on current financial situations and identify essential coverage required to protect against significant risks. Shopping for competitive rates, obtaining multiple insurance quotes, and comparing premiums and coverage options will help find cost-effective policies from stable insurance firms. 

The writer is the regional Executive Director, of Reinsurance Solutions