Kenyan insurers turn to innovations on the back of worst performance in 12 years

Patrick Alushula reports on the state of the Kenyan insurance markets and on efforts to drive profitability and a new direction Kenyan insurance firms are turning their attention towards innovative products to catch the attention of the rising young population, in a bid to stave off further market losses and to build business in new markets. Many insurers are concerned that they may be out of business if they do not tap into Kenya’s growing young population and are now willing to join hands in shifting from legacy products to meet the unique needs of the youth. Association of Kenya Insurers (AKI) chief executive Tom Gichuhi said the tide has turned and insurers must disrupt themselves and collaborate with technology firms to deliver affordable, flexible and short-term covers as demanded by the youth. “If we keep on insisting that our products must be annual and we are not able to come up with short-term covers that are reasonably priced, we will wake up as dinosaurs,” said Mr Gichuhi at an insurance forum in Nairobi. Kenya’s insurance penetration has dipped to 2.43%, the lowest in 15 years, while combined profit for the 54 insurers has shrunk to KSH3.54bn – also the lowest in 15 years, despite the rise in insurable risks in the economy. It is a performance that Mr Gichuhi, who has been in the industry for more than 35 years, sees as a threat to his legacy unless reversed. He told insurers that they will have to get organised, or get disorganised by technology. “I am just about to exit [the market] but I am not too sure if after 35 years I will have anything to show for it, because we know our problems but have been too slow to respond,” he said. Feeling the heat Reinsurance firms are also feeling the heat, according to Zep Re chief executive Hope Murera, who wants reinsurers to join hands with insurers and technology firms to redefine insurance. “We have to get innovative to be part of the financial inclusion agenda. That calls for knowing what the young people are doing,” she said. The population of Kenya is very youthful, with the median age estimated at 19 years and about 70% of the people being below 35 years. Yet, AIG Kenya managing director Catherine Igathe said the average age of customers with insurance cover in Kenya is 40 years. She added that, while the old customers want to own property, the youth want to rent and therefore the legacy covers are losing shine. “Old people want to buy cars and houses, but many young people are increasingly preferring to rent. They want to insurer their gadgets such as phones,” she said, adding that the old model of selling insurance will no longer work. With many insurers making losses and risk-based capital pricing on the way, insurers are running on limited budgets, offering little headroom to innovate. Chief executive of Jubilee Insurance Julius Kipngetich said the only way forward is to set up an innovation fund so that firms can pool together resources to develop new products. “The performance is dropping and this means customers are discrediting the old models of insurance. Yet no insurance firm is profitable enough to allocate money for innovation. We should start contributing a small amount of money per policy and create an innovation fund,” said Mr Kipngetich, who heads the largest insurer in Kenya. The Insurance Regulatory Authority (IRA) is ready to support the idea. Manager for policy, research and development at the IRA, Robert Kuloba, said the industry requires innovation labs to admit, sharpen and test new ideas. “Innovation is the common denominator shaping the generation of transformative solutions that address society’s pain points. And for sure the ground below has shifted and it can no longer be business as usual,” said Mr Kuloba in an address to insurers at an insurtech forum supported by Zep Re. He explained that consumers’ needs have evolved and distribution channels are moving towards digital platforms, calling for insurers to “think and stay out of the box”. IRA wants insurers to deepen their cooperation with fintechs if they are to be successful at new products. Already, the regulator is laying the ground for setting up a regulatory sandbox, with a policy paper having been developed. This is expected to be ready by June 2020. “IRA wants to encourage more experimentation so that promising innovations and startups can have their solutions tested in the market. The proposed sandbox has safeguards to contain the consequences of failure,” said Mr Kuloba. Chasing business Insurers have been accusing each other of reckless price undercutting as they chase business. Despite Kenya having 47 counties, Nairobi county alone accounts for 80.67% of the industry’s annual premiums yet only contributes 21.7% of Kenya’s GDP. This means insurable risks in many of the counties are yet to be addressed. Only ten of the 54 insurers offer cover for crops and livestock, in an economy where at least a third of the GDP is hinged on agriculture. However, as insurers eye short-term products, they will have to deepen their relationship with actuaries to ensure that they come up with premiums that are both affordable and profitable, according to AKI executive Mr Gichuhi. “Many people want insurance but they can’t afford it [or to pay for an annual premium]. So you either give it on credit and allow them to pay in instalments or work closely with actuaries to develop short-term covers,” he said. For instance, a vehicle worth KSH5m charged at the industry’s average rate of 4% will require KSH200,000 in upfront payments before the cover sets in. This is expensive, given that government data shows 74% of salaried Kenyans earn less than KSH50,000 a month. Kenya’s insurance law does not allow for credit payment of premiums but Mr Gichuhi said nothing is cast in stone. His firm will be opening discussions with IRA to change the law and include this as part of the innovative ideas to be tested. “One way of controlling debtors will be to make use of credit reference bureaus (CRBs), so that customers who fall back on payments are listed, just like happens with bank customers. Those in default will not access insurance from any other insurer,” said Mr Gichuhi. Currently, Kenya has three CRBs – Transunion, Metropol and Creditinfo – licensed as aggregators of consumer credit history but majorly serving banks and savings and credit cooperative societies. However, key to all of this will be digitalisation. Elias Omondi, an actuarial associate at IRA, said insurers must start by digitalising most of their systems such as claims processing, instead of relying on existing paperwork. The insurance firms know they must move with speed or shed more market as their strongest client base ages out. Master principal solution engineer at Oracle, Alan Lule, said insurtech startups are also posing a major risk to the traditional insurers. “Many millennials believe that car or home insurance is dead. They would rather insure their mobile phone so that if it is stolen tomorrow, they can be compensated and get back to social media,” said Mr Lule. Machine learning, artificial intelligence, the internet of things and virtual reality are among the buzzwords that insurers must now get used to. Mr Lule said insurtechs have registered 500% growth in just three years and attracted $2.4bn in funding, pointing to where investors see the market shifting. “This shows you where the next big opportunities are. You have to prepare today for tomorrow’s business,” Mr Lule advised insurers. A 2017 report by PwC, titled Opportunities Await: How Insurtech is Reshaping Insurance showed that 74% of traditional insurance companies believe insurtech startups will pose strong competition to their businesses. The report further showed that while 43% of insurance players claimed they have fintech at the heart of strategy, only 28% were exploring partnerships with fintechs.

Kenyan insurers turn to innovations on the back of worst performance in 12 years

Want to read this article?

Read Next

UN launches new net-zero insurance forum

Pen extends capacity deal with Zurich in Republic of Ireland

Mapfre Global Risks boosts profit by 58% despite reduced premiums

Talanx confident of ‘significantly exceeding’ full-year forecast

US insurers’ profitability unlikely to be impacted by Baltimore bridge collapse

UN launches new net-zero insurance forum

Pen extends capacity deal with Zurich in Republic of Ireland

Mapfre Global Risks boosts profit by 58% despite reduced premiums

Talanx confident of ‘significantly exceeding’ full-year forecast

US insurers’ profitability unlikely to be impacted by Baltimore bridge collapse

Want to read this article?

Read Next

UN launches new net-zero insurance forum

Pen extends capacity deal with Zurich in Republic of Ireland

Mapfre Global Risks boosts profit by 58% despite reduced premiums

Talanx confident of ‘significantly exceeding’ full-year forecast

US insurers’ profitability unlikely to be impacted by Baltimore bridge collapse

Related Articles