Insurance penetration in Kenya stood at 2.4 percent of Gross Domestic Product (GDP) in 2018 down from 2.6 percent recorded in 2017, on the back of price undercutting in an industry where players are facing increasingly tough competition.
In the last five years, the life insurance market in Kenya has experienced growth in both the level of direct premiums as well as in the equity held by the industry constituents. In 2018, Kenya had 53 insurance companies, 5 reinsurance companies.
Industry gross written premium stood at 117.28 billion shillings as at end of H1’2019 representing an increase of 4.4 percent from 112.39 billion shillings in H1’2018.
Long term insurance and general insurance segments grew by 6.9 percent and 2.9 percent respectively according to an insurance report released by Cytonn Investments.
General insurance business remained the largest contributor to industry insurance activity contributing 62.3 percent of the total premium.
Motor insurance and medical insurance classes of business account for 66.8 percent of the gross premium income under the general insurance business.
In the long term insurance segment, pensions and life assurance classes were the biggest contributors to the life gross premium income, accounting for 66.5 percent in H1’2019, compared to the 66.4 percent contribution by the two classes recorded in H1’2018.
In June 2019, IRA made amendments under valuation of technical provisions for life insurance business and capital adequacy guidelines.
The assumption under interest rate risk for life valuation was revised from 20.0 to 10.0 percent and the insurance risk factors relating to interest rate risk margin for capital adequacy was revised from 10.0 to 18.0 percent.
The implication of this amendment is that those insurers will need to be wary and look out for and manage various interest rate stress factors to remain well within the assumptions set forth in the guidelines.
Insurers have seen a decline in group life business as well as the ordinary business as a result of price wars that have been prevalent among the players in the industry.
Price wars have negatively impacted performance in the insurance sector. The price wars are a result of the low penetration rates in the country which has led to players in the market undercutting product pricing in order to gain market share.
The undercutting continues to be a major challenge in the industry as well as increasing the risk that comes with product mispricing.