Kenya’s Insurance Act is being amended to open up ownership of insurance companies and brokerage firms to other citizens of the East African Community (EAC) trading block.
Already, the Banking Act Cap 488 has been amended widening the distribution channels by introducing bank assurance and agency banking. At the moment, the law does not allow foreign banks to set up their own agencies — a situation that stifles growth of the bank assurance model where banks are used as delivery channels to sell insurance products to customers.
“Allowing foreign controlled banks such as Barclays, Standard Chartered and CFC Stanbic banks to set up insurance agencies will open up the sector to more competition [and] increase the level of penetration as the big banks sell insurance products to their customers,” Kennedy Abincha, Managing Director for Trident Insurance Company told AFK Insider.
The country’s 2012 Insurance Industry Annual Report lists 46 insurance companies as operating at the end of 2012. Twenty-three companies wrote non-life business, 11 wrote life insurance while 12 were composite.
There were 170 licensed brokers, 24 medical insurance providers and 4,862 insurance agents. Other licensed players included 149 investigators, 92 motor assessors and 21 loss adjusters, three claim settling agents, 10 risk managers and 27 insurance surveyors.
“In order to encourage multinational banks to conduct bank assurance and deepen insurance penetration, I propose to amend the law to remove restriction of foreign ownership of insurance agents,” Henry Rotich, Cabinet Secretary for National Treasury told parliament during the 2013/14 budget speech in June of this year.
With a huge turnover, the entry of large multinational banks into Kenya’s insurance agency business is expected to drive up activity in this sector, where penetration remains low at three percent, according to figures from the 2012 Association of Kenya Insurers (AKI) report.
Last year, an average of $3,677 per capita in nominal terms was spent on insurance in advanced markets. This is slightly less than in the previous period as life insurance spending fell to $2,133 from $2,152. Overall insurance penetration remained at 8.6 percent.
Figures from Swiss Re, Economic Research and Consulting, places Hong Kong at the top with the highest penetration at 12. 44 percent. This is compared to 3.6 percent for Africa and 3.16 percent for Kenya.
AKI figures also indicate that in 2012, the industry incurred net claims totaling $570 million compared to $443 million in 2011, representing an increase of 28.31 percent.
Top on the list of factors contributing to the low uptake of insurance products in Kenya include a negative public perception as a result of individuals and third party claimants providing misleading and false information, which makes the claims management a tedious and expensive process.
“As a result of fraud, the insurance industry has been associated with numerous malpractices which have led to the overall negative perception associated with the business. The industry is also seen to be slow in settling claims,” said Caroline Wanjiku Munene, General Manager and Principal Officer of Africa Air Rescue (AAR) Insurance Kenya Limited. This is a subsidiary of the AAR Group of companies, and the insurance arm of the business in Kenya.
Initiatives intended to increase industry penetration include an improved regulatory framework, innovative products, adoption of alternative distribution channels, enhanced public education and use of technology.
Industry figures show that Kenya’s insurance industry grew by an impressive 18 percent in 2012 posting $1.28 billion in gross written premiums as compared to $1.08 billion registered in 2011. The main drivers of this growth remain the traditional motor, medical and fire insurance.
Despite the growth in revenue, the overall penetration of insurance increased from 3.02 to 3.16 percent meaning that most Kenyans are still locked out of insurance services. In 2012, short term (general insurance) took the largest chunk of the insurance market pie standing at 66 percent while long term (life insurance) stood at 34 percent.
Although Kenya suffers slow penetration, it is ranked fourth highest in Africa and better than Mexico, Russia and China. The report points to a possible leap in the local industry growth to about 20 percent in 2013.
In the 2012 report, AKI executive director, Tom Gichuhi attributed the slow growth in Kenya’s insurance to price undercutting and consumer apathy as a result of the poor image of the industry and fraud.
AKI Chairman, Mark Obuya said performance of the industry in 2012 was encouraging given that the first half of the year was characterized by sluggish economic activity.
Still, thanks to a resurgent agricultural industry coupled with an easing monetary policy and the onset of short rains in the second-half of 2012, economic activity in Kenya experienced a boost — rubbing off some of the gains on the insurance business.