By - Kiraithe Daniel Mutemi
Insurance offers protection to individuals in several ways. However, the uptake of insurance in Africa is as low as 2.8 percent despite the critical importance it plays. Insurance is quite technical, and the terms used are far above the understanding of a common man. This language scares many potential buyers. Insurance products in Kenya are feared, but it is insurance sales agents that are more dreaded. The industry culture is attributable to historical sales agents’ unethical behavior of canning unsuspecting buyers by changing the product proposed by the buyer to those which can earn them better commissions among other vices of the industry.
According to the Association of Kenyan Insurers (AKI), the global insurance market was brighter in 2017 due to improved business in all the economic segments. Financing costs were favorable; technology was advancing, thereby reducing costs and increasing profits. In the year 2018, however, a significant slowdown of economies slowed down the sector’s prospects. In Kenya, the insurers blamed the stocks markets lower revenue, the downturn in real estate, and poor performance of government securities investments. Raising claims complicate the matter for this industry even further.
Away from the general performance of the industry, the question of insurance products perception and their reception by target consumers remains critical yet unresolved. Africa and Kenya, in particular, is made up of social-cultural believe that everyone in the society is protected by the same community s/he belongs. People would gather to assist a community member foot bails and other necessities. Harambee is a common term used in Kenya to mean ‘pulling together.’ It has been used since independence to help mobilize required resources for public or individual project realization. Today, Harambee is still prevalent in raising funds to pay for kin’s bills. The Kenyan coat of arms bears the name Harambee emphasizing how unity was a crucial pillar in the social, political, and economic life of Kenyans.
Mobilizing resources through fundraising drive is an African way of doing things and may not end any time soon. However, the reliability of this method is diminishing with time. We are living in a capitalist economy that can not be supported by social, economic strategic subscriptions that are not backed by a solid financial plan. The insurance sector was failing due to such social initiatives, but they are slowly dying a natural death. Insurance business culture that scared many potential buyers is staring at opportunities.
But it is not dishonesty that rules this industry only. Fraud is costing underwriters substantial amounts of the gross underwritten premiums, eating into their bottom line. Insurers also are contributing to their own downfall by undercutting prices to win businesses in the fiercely competitive industry. However, despite all these challenges, Kenya has made significant steps in establishing an industry that is quite literally against the norms of most Africans. For instance, the insurance penetration in Kenya is 3 percent, which is above the continent’s average signaling her potential, just like the rest of Africa.
It is quite absurd to sell a funeral insurance cover to a typical African believing death should not be discussed. Some people misconstrue that to mean the purchaser of such a product wishes for the death to come. Insurance is thus condemned quickly and may be seen as a curse by those who may misinterpret its purpose. However, this narrative is changing as education, technology, and economic bites continue to be felt across the continent.
Innovation and consumer education are some of the critical factors helping the penetration to grow despite the challenges facing the industry and the economy in general. Additionally, economic recovery assists boost uptake, especially to the general insurance products which are characterized by short term expiry and low premiums. The dominant type of insurance in the market remains the General Insurance mainly due to legal compliance requirements and affordability General insurance accounts for more than 60 percent of the gross written premiums in Kenya.
According to ABC capital Insurance Industry Report 2018, long term insurance growth is driven by a number of factors that are both largely social and economic. A changing structure of the family, for example, is moving people from living a communist life with extended family ( African) to a more capitalist setting of a nuclear family. This change, therefore, eases the buying and selling of insurance products due to increased affordability and product fit.
In an economy of growing middle-class, the hierarchy of needs necessitates individuals to purchase protection products since they can afford and at the same time, they look fashionable. Also, the women workforce in Africa is growing. In Kenya, this number stands at 49 percent, thereby touching the core nerve of family social protector. Another influencer is the devolution that increased the power and resources in rural areas creating more urban zones and rising government spending on projects that require insurance as a legal or social requirement.
Bancassurance, which is the insurance business activities carried by banks, has recently invaded the traditional sales points hence disrupting the distribution channel path. Clients are likely to trust banks more than insurance sales agents. This trust translates into higher written premiums both in long-term and short-term businesses. Marine cargo insurance policy passed in 2016 came in effect from January 1, 2017, with a mandatory requirement for importers to buy marine insurance from local insurers. With increased international trade and coming into effect of the law, marine insurance class contributed over ksh 2.2 Billion to the General Insurance premiums in 2017 as compared to less than ksh 1 Billion the previous year. In 2018, the class recorded a flat growth.
Claims and benefits
As the Kenyan insurance industry grows, so are the payouts. The total paid claims and benefits in 2017 amounted to Ksh 100.8 Billion (971,812,800 USD). This figure was an 11% increase in the payout. This figure comprised of 45.6 percent as compared to 40.8 percent that was experienced the previous year under life (long-term) insurance. General insurance (short-term) accounted for the rest. In 2018, the underwriters reported more claims payout and reduced earning.
Innovations in the industry have been primarily driven by technology. Consumer interaction using technology especially the mobile telephone which is well developed and widely used with penetration of about 98 percent in Kenya can offer a lucrative and profitable channel to market, close business and even pay claims.
Consumer education and continued risk mitigation are critical for future insurance growth. Education, especially in Africa is key to creating awareness of the benefits that come with purchasing insurance products. The language used by insurers must be revised if they need to identify with ordinary people capable of buying insurance but may not be formally educated to understand the jargon.
Systematic risk management to mitigate loss arising from fraud and other crimes in industry practices must be enhanced to reap the benefits of utmost good faith contracts. Regulators must be more vigilant and effective in curbing undercutting and other unethical behaviors. The rise of unpaid claims and high loss ratios are driven mainly by underwriters’ tendency to undercut prices to win businesses that are not really profitable.
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