Prospects good for insurers despite turmoil

The insurance industry in Kenya has witnessed tremendous growth over the past five years going by the continent's low penetration quotient.

The insurance penetration ratio, which is the gross value of insurance premiums as a percentage of Gross Domestic Product (GDP), is often used as a measure of how deep a country's insurance market is ranked, developed and perceived.

Despite the poor performance of the insurance industry in Africa, Kenya still ranks highly in the continent just behind South Africa, Namibia and Mauritius. In fact, Kenya's penetration at 3.1 per cent is well above the average for emerging markets of 2.6 per cent.

According to a report by KPMG entitled Insurance in Africa, the global average is currently at 6.5 per cent.

This has been vindicated by the fact that Kenya has achieved an average GPD growth rate of 5.4 per cent over the last five years, compared to 4.4 per cent achieved by her sub-Saharan Africa peers.

The good ranking has been as a result of economic diversification which has propelled the country's growth in the face of weakening global conditions that have adversely affected commodity exporters as demand and prices declined.

But last year, the insurance sector in the country performed below its projected forecast. A number of insurance companies have gone ahead to announce poor results or given profit warnings to their shareholders and the public to expect shrinking financial performance.

This has been largely blamed on depreciation of the shilling and other macro-economic factors pegged on a mix performance of the major sectors that drive economic growth namely tourism, transport, agriculture and manufacturing.

We have also seen Sub-Saharan African stock markets significantly under-perform according to various economic and corporate reports. This is also linked to recent rate increase in the US which has reduced their risk appetite for securities in emerging and frontier markets and made the US market more attractive.

Resolution Insurance, as one of the companies operating in this market has not been spared either. We too had a very tough year as we made our foray into the General Insurance space.

But looking forward, uncertainty and pessimism have dominated economic and business news in recent months. While at face value the mood seems justified as many factors – including China's financial gyrations, volatility in oil prices, and the further weakening of the US economy – are all colluding, the recent developments by themselves do not yet signal an imminent global economic recession.

Yet, the recent challenges to the global economy, have led to some significant adjustments by The Conference Board's Global Economic Outlook for 2016. Global GDP growth is now projected at 2.5 per cent, which is 0.3 percentage point lower than the November outlook.

The sector is likely to benefit from the same forces that have put Kenya's banking industry on a fast trajectory over the past few years, including a rising middle class and the influence of technology.

I believe investment in modern technology, stable regulatory environment and uptake of insurance products due to an expanding middle class will be the key driver for growth in the insurance industry.

Introduction of innovative products and solutions is also a step in the right direction.

Currently, with more than 40 companies offering insurance services in the market, there has emerged stiff competition, making world-class service delivery channels and standards among the main competitive advantage fronts.

And with the new risk based capital regulation, insurers are moving away from investment in property and the stock market towards government securities and the money market.

There is surely more light than heat at the end of the tunnel for the insurance industry in the country this year.