Kenya’s general insurance uptake drags on rising fraud, poor selling

Patrick Alushula takes a look at the state of Kenya’s insurance industry and finds some worrying signs. He discovers some of the problems have existed for some years but are still to be meaningfully addressed The pace of growth in the short-term insurance business in Kenya has slowed, reducing its share of overall gross written premiums. The sector blames the problems on rising fraud and poor selling strategies. The Insurance Regulatory Authority (IRA), which regulates Kenya’s 53 insurers, says that rising cases of fraud have put pressure on pricing of insurance products and slowed down the claims’ settlement period. This has hurt the uptake of products, with the situation worsened by poor selling strategies. For the most part insurers have been concentrating in capital city Nairobi and a few other big towns. Of the overall insurance penetration of 2.83% – a distant far cry from South Africa’s 16.99% – the penetration of non-life products is only at 1.6%. Insurers still believe opportunities abound in a 46 million people economy with an expanding middle class. A September 2018 PwCs report, Ready and Willing: African insurance industry poised for growth, ranked Kenya as top target growth market in Africa for South African insurers, citing high GDP growth rates and rising population size. However, it cited regulatory burden, access to distribution, availability of talent and political instability as the key barriers. In April, Mauritius Union Assurance (MUA), formerly Phoenix East Africa Assurance, increased its presence in Kenya by announcing a $30m investment in the market. This would be its single biggest investment in the country, coming five years after its initial investment of $22m. “This investment will strengthen our position in Kenya and ultimately gain market share. We are among the top 10 general insurance players in Tanzania, Uganda and Rwanda, and our focus now turns to growing our market share in the key Kenyan market,” group CEO Bertrand Casteres said on the investment. MUA has been present in Kenya since 2014 and Mr Casteres hopes to ride on the growing young population to position the insurer as a disruptive player, by offering innovative digital insurance products and services targeted at retail clients. “We are able to offer solutions for more specialised insurance risks, including cyber risks, coupled with a professional service and holistic approach to risk assessment,” he said. MUA investment comes in a market where general insurance business contributes approximately two-thirds of the total gross premium income but life business has been growing at a faster pace. This is despite marine and transit insurance, aviation and engineering having been poised as growth champions thanks to increasing international trade and a growing number of Kenyan infrastructure projects. The gross premium income for general insurance business grew 2.2% to KSh127.5bn in 2018, with the pace being lower than that of life insurance which grew 17.4% to KSh87.3bn. This slowed growth has taken the short-term portion of overall written premiums below 60% (59.4%). From 64.7% in 2015, it dropped to 62.5% in 2016 and closed the succeeding year at 60%. That of life insurance has hit 40.6% from 35.3% in 2015. In 2017 alone there were 853,705 new policies written under general insurance business while 1.29 million policies were renewed totaling to 2.14 million policies in force, according to data from IRA. This is in comparison with 2.28 million policies in force at the end of year 2016 representing a 6.1% decline. IRA acting commissioner of insurance and CEO Godfrey Kiptum says penetration of insurance products is still low given that in the country’s Vision 2030 blueprint, the country eyes at least 5% penetration. “We are working very hard to increase penetration,” he said recently when issuing certificates to the 53rd insurer, Kuscco Mutual Assurance, which opted to make a foray with life products. The IRA chairperson Abdirahin Abdi added that the sector is looking for disruptors that can ride on the increased financial inclusion to take insurance products beyond the capital city, Nairobi. The general insurance business in Kenya is dominated by regional and local insurers. APA Insurance, which underwrites general insurance risks such as motor, agriculture, marine, property and micro insurance was leading at end of 2017 with sums insured valued at $99.6m. CIC General Insurance Company followed with $80.7m. APA was formed after the merger of the general businesses of Apollo Insurance Company and Pan Africa Insurance. The sector also has also few international players with sums insured being below that of many local and regional players. AIG Kenya, a majority-owned subsidiary of AIG Inc, which has been in Kenya since 1972, had an insured sum of $12.8m. That of Allianz Insurance Company of Kenya, a subsidiary of Germany-headquartered Allianz Group, was $2.29m. Kenyan insurance companies have been increasing their presence in the region by establishing offices across east, central and to a certain extent southern Africa. “This has been necessitated by insured customers in Kenya having interests in the regional market with focus on manufacturing, tourism, transport and communication, building and construction across the region wanting to be covered by the same insurer,” says the Association of Kenya Insurers (AKI), a consultative and advisory body for insurance firms. But even with this allure for a regional outlook, many places within Kenya remain unserved or underserved, before companies look to spread their wings further afield. Currently, most general insurance business is concentrated in Nairobi County – the country is divided into 47 counties. Low consumer awareness and skewed investments are seen as key reasons why insurers do not expand further. In 2017, Nairobi County accounted for 79.2% of the $1.2m total general business premium for the industry. The County has consistently accounted for the highest industry premium since 2015. This was followed by Mombasa (6%), Kiambu (2.2%), Nakuru (1.9%) and Kisumu (1.7%), leaving 42 counties to share 9.1%. Insurance distribution in Kenya has through the years relied predominantly on insurance sales agents and brokers. The regulator has so far trained more than 3,000 insurance agents across 34 counties with the hope of reducing this disparity. “We have continued to conduct trainings for insurance agents under the executive certificate of proficiency programme in partnership with the county governments,” IRA says. However, AKI says the sales and distribution model remains more concentrated in the cities, leaving out many other parts of the country, and may not be sustainable. “Insurance companies need to devise new distribution models to serve their customers better, reduce operating costs and extend their markets,” AKI advises in its latest annual report. Fraud challenges But as the regulator chases more penetration, fraud remains one of the greatest challenges facing the sector. Multiple reports commissioned by sector players put fraud at around 10% of the property or casualty insurance industry’s incurred losses and loss adjustment expenses each year. The low insurance penetration has also led to cut-throat competition. This has caused some industry players to undercut in product pricing to win clients, sometimes plunging into loss. In 2017, IRA was barred by Competition Authority of Kenya from setting minimum premium prices, leaving market forces to determine costs. The High Court directed that the regulator had no role in fixing insurance premium prices. This has meant that insurers compete for clients without any guidelines, unlike previously when, for instance, IRA had set 7.5% of a car’s value as minimum premium charged. This was to be discounted by 10% for each year of no claim. Insurers also compete on payment of intermediaries like brokers, and this has also meant higher costs in terms of remuneration. Julius Kipngetich, CEO of Jubilee Insurance Group, the largest insurer in Kenya with gross written premiums of $344m, says poor underwriting processes have also made it worse for many firms. “Intermediaries’ margins have increased tremendously in the last two years. There were rules around that but now some firms are paying as high as 12%,” he said. For the financial year ended December 2018, five companies offering non-life products reported capital adequacy ratios. Britam and Sanlam Kenya, being two of the five insurers listed at Nairobi Securities Exchange (NSE) and offering general insurance, booked losses. The earnings of many insurers with large exposure at NSE usually book unstable earnings, depending on the direction of the securities market. Last year, NSE market capitalisation shed $4.13bn and yields on government bonds dropped, which resulted in subdued growth in investment income, partly contributing to losses by Britam and Sanlam.

Kenya’s general insurance uptake drags on rising fraud, poor selling

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