For How Long Will Kenya’s Insurance Sector Remain at Infant Stage?

By Zak Syengo / April 19, 2019




Over the last 10 years, a number of insurance companies have wrapped up business operations in Kenya, a sign of a challenging business environment or probably an industry at a crossroad.

It is a sub-sector within the financial industry that has faced the most mergers and acquisitions particularly by companies from South Africa. It is also an industry where little or no growth in the last decade has been experienced.

Insurance penetration has remained low, stagnating at 3% over the years. South Africa, one of the leading insurance and banking hubs in Africa has achieved a double-digit penetration fuelled by innovation, awareness and a robust regulatory environment. Are these key tenets of a functional financial ecosystem lacking in Kenya to spur sustainable growth?

A lot of reasons have been mentioned for the slow penetration of insurance in Kenya. The cost of insurance is not only prohibitive but also not reasonable. A lot of people desire to procure insurance for their properties or businesses but the cost discourages such a risk management decision.

Hence millions of Kenyans accommodate huge investment and business risks and experience irreversible fortune loses in case of any eventualities. An example is the crop and livestock insurance that has been ranging between 4.7 to 7 percent. While 80 percent of Kenyans population is involved in meaningful farming, they are obviously excluded from accessing insurance products due to the cost implications.

There are also cultural issues that come into play when insurance is discussed. In the spirit of Harambee, we are quick to pool together resources in case of unfortunate occurrences like a bereavement.

However, deliberations around last expense insurance are a complete uncomfortable zone for most people. In some developed countries, citizens plan for their last expense and contribute to a fund that eventually takes care of the related costs. Breaking the barriers of culture is not likely to take place immediately but that conversation needs to be accelerated.

One of the best ways of attaining a certain level of acceptance is by deliberate awareness creation. This phenomenon should be separated from normal adverting. A concerted effort by private sector players and regulator at all levels, rural and urban, would definitely create a surge in insurance penetration. In banking and microfinance sector, there have been tremendous steps since 2002, a fete that can be attributed to the favorable regulatory framework, deliberate awareness by all the stakeholders and innovation.

According to FinAccess, a study by FSD, Central Bank of Kenya and KNBS, Kenya has grown from 40% financial inclusion in 2006 to 82.9 percent in 2019. This remarkable milestone has been achieved through tireless efforts by all the players. Such may not have been assimilated in the insurance industry.

My opinion is that the insurance industry lacks the drive for innovation. As my colleague puts, it is only in this industry where archaic ways of business origination, processing, and maintenance are accepted. Over the years, most financial systems have kicked out “stupid rules “to pave way for better customer experience. Innovation and creativity would make the cake bigger and probably allow greater insurance penetration.

For now, all insurance companies seem to focus their sales and marketing drives on competing for the 3 percent existing market. So you move your motor premium payment from underwriter A this year to underwriter B next year. Probably emphasis on micro-insurance, targeting casual laborers, smallholder farmers and the largely uninsured would give us the much-desired growth in the insurance sector.





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