The insurance sector in Kenya is saturated and faces low penetration rates in one of the best-regulated markets. The insurance sector is fragmented and competition is tough according to Cytonn Investment Kenya Listed Insurance Companies FY’2015 Report.
“The number of insurance companies in Kenya amount to 49 firms, which equates to about 1.1 insurance company for every 1 million Kenyans, a similar ratio to Kenya’s banking sector. However penetration still remains low at 3.0 percent, lower than the average of 3.8 percent in Africa, having remained at this figure for a number of years,” reads the report.
The report themed, “Given turbulence in banking, is all well in insurance?”, says the sector grapples with low penetration, slowing premium growth, increased cases of fraudulent claims and the required increase in capital following adoption of a risk based capital adequacy framework.
Analysts emphasise that a sustained influx of capital will prove crucial, and insurance companies will need to build capital quickly. This will be through investing in technology to stay competitive.
“We are of the view that insurance companies have a lot they can do in order to register considerable growth and improve penetration in the country. Foremost, we expect an uptick in relationships between banks and insurance companies to introduce bancassurance as well as the integration of mobile money payments to allow for policy payments through this increasingly preferred transaction medium.”
“The core issue we see is to innovate into more relevant products to improve uptake. Significant opportunities remain in the Kenyan insurance market, with growth areas identified especially in commercial lines such as oil, real estate and infrastructure.”
In contrast to the Kenya National Bureau of Statistics (KNBS) 2016 Economic Outlook that said growth in 2015 was supported by a stable macroeconomic environment, and improvement in the agriculture, finance and insurance sectors, Cytonn notes the Insurance sector, “With an industry combined ratio average at 113.8 per cent, insurance companies are not profitable from their core business and diversification of their revenues is key to profitability “ besides experiencing robust growth over the years, with the financial services sector in Kenya currently contributing 10.1 percent to Kenya’s GDP growth, from a 3.5 per cent contribution 10-years ago.
This is as a result of:
- Convenience and efficiency through insurance firms adopting alternative channels for both distribution and premium collection such as bancassurance and improved agency networks,
- Advancement in technology and innovation making it possible to make premium payments through mobile phones, and
- A demographic boost in Kenya, such as a growing middle class, which has led to increased disposable income, thereby increasing demand for insurance products and services.
Thus, the insurance sector sector recorded a decline in core EPS growth of 39.1 percent, which was lower than the 7.6 per cent core EPS growth recorded in 2014.
FY’2015 Listed Insurance Sector Metrics
From the table above:
- While core EPS growth was negative at (39.1%), Kenya Re still managed to report respectable double digit EPS growth as it being the national reinsurer, insurance companies are required by law to cede to Kenya Re, guaranteeing top-line growth, while keeping costs low. CIC Insurance and Jubilee’s growth was relatively flat attributed to negative growth in the underwriting business, while being cushioned by investment income growth and decline in expenses. Pan Africa, Liberty Holdings and Britam all registered significant downside growth attributed to high expense growths as they acquired new business,
- Only Liberty Holdings registered a growth in net premiums accompanied by a decline in net claims. Kenya Re and Britam both reported an increase in premiums, however their growth in claims outpaced their growth in premiums. CI C, Jubilee and Pan Africa each registered a decline in premiums and claims from the previous year, and,
- Britam was the only insurer to report a negative return on equity of negative 5%, compared to an industry average of positive 12.4%.