Kenya’s personal accident and health segment has been the success story for Kenya’s insurance industry in recent years – posting a compound of annual growth rate (CAGR) of 28.8% between 2009-2013 – and the forecast for the health continues to remain positive.

The use of advanced technologies including mobile technology by insurers, an improved regulatory framework, and the approval of the new licensed medical insurance underwriters led the health segment’s growth in 2013.

Such developments are expected to drive the industry and especially health insurance growth between 2013 and 2018. For example, the personal accident and health segment in Kenya is projected to grow from KES22.7bn in 2013 to KES51.7bn in 2018, at a forecast-period CAGR of 17.9%.

At only 1.1%, Kenya’s life insurance penetration ratio is very low due to the high level of poverty, according to a KPMG report published in 2014.

Even so, the report said the penetration rate is still better than in most other African countries.

In recent years, KPMG noted that Kenya has seen the entry of a few foreign market players, which is a very encouraging sign for future development. For example, it says Metropolitan and Old Mutual, both South African companies, have entered the market.

Overall, the Kenyan insurance industry grew from KES64.6bn in 2009 to KES 135.2bn in 2013, at a CAGR of 20.3%. This growth was achieved due to various factors, such as the expansion of the distribution network and premium growth.

The life segment accounted for a 31.5% of the industry’s gross written premium value in 2013, and valued KES42.5bn, compared to KES 23.7bn in 2009. By contrast, the non-life sector in Kenya accounted for 51.8% of the industry’s gross written premiums in 2013.
Looking ahead, the life segment is expected to increase in value at a CAGR of 13.5% between 2013 and 2018 going from KES42.5bn in 2013 to KES80.3bn (US$0.9 billion) in 2018.

Kenya’s personal accident and health insurance segment accounted for 16.8% of the industry’s gross written premium value in 2013. The segment grew from KES8.3bn in 2009 to KES22.7bn in 2013.

The personal accident and health segment is projected to grow from KES22.7bn in 2013 to KES51.7bn in 2018.

This means Kenya’s non-life and personal accident and health insurance market shares are anticipated to increase to reach 55.5% and 17.5% respectively by 2018, while the market share of life insurance is expected to decline to 27.1%.

The total reinsurance premium ceded by life insurers in Kenya was KES 2.73bn in 2013 compared to KES 2.39bn in 2012, an increase of 14.2%, according to the Association of Kenya Insurers’ insurance industry annual report 2013

The prudential guidelines issued by Kenya’s IRA require all life insurance business to be reinsured with local reinsurance companies.

Five reinsurers dominate the Kenyan life insurance market: Africa Re; ZEP-RE; Kenya Re; East Africa Re and Continental Re.

Key Industry trends and drivers

Several trends are driving the Kenyan life and health insurance sector. In the first place, the Kenyan insurance industry is largely untapped as insurance penetration was 3.4% in 2013, but still lags behind the regional average of 3.6%.

Most people still remain uninsured despite an increase in insurance penetration rates. According to Kenya’s insurance regulator, the Insurance Regulatory Authority (IRA), 93% of the total Kenyan population still remained uninsured in 2012. The low penetration rate of 3.4% in 2013 provides space for further growth.

In order to gain a market share and increase sales, several insurance companies in Kenya have launched products such as micro-insurance and index-based weather insurance for low income groups and farmers.

In addition, several insurers have strengthened their distribution channels, such as bancassurance and mobile-technology.

Moreover, insurers are spending heavily on the development of IT infrastructure in order to improve efficiency and growth. These factors are expected to generate higher demand for insurance companies over the forecast period.

A KPMG report published in 2014, also notes that the Association of Kenyan Insurers (AKI) has released a strategic plan for the industry for the 2011-15 period.

KPMG said the AKI hopes that by the end of this period, premiums will rise to KES200bn, up from KES90bn in 2011.

According to KPMG, the AKI has listed the following methods to achieve premium growth:

– Simplifying products and creating innovative new ones
– Customer education;
– Using social media and technology to reach the untapped lower end of the market;
– Promoting the image of insurers
– Improving the functioning of member companies and modernising the Insurance Act.

Mobile attraction
Life insurers’ implementation of a mobile platform is expected to attract more customers and diversify the client base, which will increase sales of life insurance products between 2013 and 2018
Already, Kenyans can pay premiums via their mobile phones through platforms like M-PESA and Airtel Money.

Meanwhile, Pan Africa Life signed an agreement with Bharti Airtel Kenya in 2013 to sell their life insurance products using the mobile platform ‘Bima Mkononi’.

This, coupled with the rising number of internet users, in Kenya which grew at a rapid CAGR of 41.1%, will generate higher business for life insurance providers between 2013 and 2018.

The number of internet users increased from 4m in 2009 to 15.8m in 2013, and is expected to reach 24.7 million by 2018.

Furthermore, with the bancassurance model formalised, a report published by corporate stock broker, Sterling Capital, in February 2014 said it expects to see more insurance companies in the region forming partnerships with commercial banks in order to tap into the wide distribution channels that these banks provide.

A reduction in the loss ratio for Kenyan life and non-life insurers during 2009-2013 is also very positive for Kenya’s life and health insurers.

The amount of losses paid by insurance companies in the form of claims is defined as the loss ratio.

For life insurers, this decreased from 50.5% in 2009 to 46.7% in 2013, while for non-life insurers it decreased from 60.1% to 56.4%. A decreasing loss ratio indicates that the claims amount has reduced, which in turn has brought down the losses incurred by the insurers. This will create more scope for profits between 2013 and 2018.

Finally, Kenya’s business environment has been enhanced by the adoption of a new constitution by Kenyan residents in August 2010 to restrict corruption and help implement favourable business conditions.

The Kenyan government is also framing policies to develop the country’s private sector, and to control inflation and keep interest rates low with the help of strong economic and monetary policies.

Moves such as this are expected to encourage the growth of the country’s insurance industry.

Like any sector, Kenya’s life and health insurance sector also faces several challenges.

For example, a high claims ratio was recorded across all segments during 2009-2013, such as life, non-life and personal accident and health insurance.

The industry’s overall gross claims increased from KES37.4bn in 2009 to KES67.1bn in 2013, at a CAGR of 15.7%.

Such an increase was mainly due to a rise in the number of fraudulent claims, particularly in the motor and health insurance categories. Fraudulent claims are expected to rise over the forecast period, further impacting insurers’ profits.

Kenyan citizens have generally lost faith in the insurance industry, following the collapse of certain insurers and retirement scheme insolvencies which resulted in delayed claim settlements and investment losses.

In the absence of strong regulations, many insurers lack transparency, which leads to prolonged investigation leading to many unpaid claims. This, along with a lack of financial knowledge, is reducing consumer confidence in the overall industry.

Often, those who do still display confidence in the industry actually do so to benefit from inclusive tax reduction available within certain schemes.

Competitive landscape

The Kenyan insurance industry, although small in global terms, is competitive. The life segment is highly concentrated, with the top five companies accounting for 69.7% of the total gross written premium in 2013.

British-American Investments Company Ltd (Britam) was the market leader, with an 18.1% share of the total life segment’s GWP; up from 17.8% in 2012.

Jubilee Insurance was the second-largest company, with 15.3% market share in the same year; up from 14.8% in 2012. Other leading insurers included ICEA Lion and Pan Africa, which accounted for a combined market share of 27% in 2013.
Due to such high levels of competition, insurers have increased their focus on new product development and cost-saving distribution channels. Attention has also been paid to new technology such as mobile platforms.

The growing popularity of micro-finance and mobile mechanisms will spur the growth of the industry over the forecast period. Furthermore, the tightening of the regulatory environment – such as increases in minimum capital requirements – will reduce unfair competition.

The entry of Prudential into the Kenyan life insurance by acquiring Kenyan life insurer Shield Assurance, which was announced in September 2014, was a recent major development

Speaking in September 2014, Matt Lilley, CEO for Prudential Africa said Prudential will invest KES 1.5bn in the Kenyan business alone over the next 12 months create 4,000 jobs by 2020, and make Nairobi the hub of Prudential’s East Africa operations.

Sammy Makove, CEO for Kenya’s Insurance Regulatory Authority, contextualised the size of Kenya’s insurance market by noting that in one of the economies that Prudential operates in, it has over 200, 000 agents selling for Prudential.
Makove says: “Those numbers are mind-boggling. In Kenya, we have only 5,000 insurance industry agents.”
Abel Munda, the managing director of Liberty Life Kenya, meanwhile has reportedly said there is immense opportunity in the east African nation for insurers.

Entering the Kenya life insurance market

The registration and operation of insurance and reinsurance companies in Kenya are regulated by the IRA.

Companies are provided with authorisation to operate insurance and reinsurance business in Kenya in accordance with the Insurance Act.

The government of Kenya permits 66.7% foreign direct investments in the insurance industry of the country.

Foreign insurers and reinsurers are permitted to operate insurance business in Kenya after getting registered with the IRA.

The minimum paid-up capital required to operate as an insurer in Kenya has been increased for both life and general insurers. To operate as a life insurer, the amount is KES300m, an increase from KES100m, while for general insurers the amount is KES150m up from KES50m and KES450m for composite insurance companies.

The insurance regulator has also proposed to base minimum paid-up capital on the level of risks that insurers take, which will pose additional challenges for industry growth.

These regulations, although good from a long-term perspective, may hinder the Kenyan insurance industry’s growth over the forecast period, according to the IIC report. Other such regulatory changes include:

  • Solvency margin increases for long-term insurers or general insurers will not exceed more than 10%
  • ‘Cash and carry’ rules, which require that insurers shall assume risk upon receipt of the premium
  • Relaxation of investment limits for general insurers
  • Introduction of penalties on late settled claims
  • Change in the rules on taxation of long-term insurance business and taxation of dividend income earned by a financial institution

Box Out – analyst’s view

Agnes Achieng Ondong, a research analyst at corporate stock broker, Sterling Capital, expects significant growth in Kenya’s life and health insurance market in 2015 because of projected economic growth and an improved business environment and ever-growing middle class population.

She says for financial companies that have adopted the mobile payments platform, the growth in customer numbers has really grown. “This is at a time when about 90% of the country’s population owns a mobile phone.”

She says: “We expect more domestic and foreign entrants because the ease of doing business has improved.”

In terms of the market’s challenges, Ondong says: “If you look at the composition of Kenya’s population, it can be seen that the majority is below the poverty line and that is the biggest challenge.

“As part of Kenya’s savings culture, there is also a low appetite for long-term savings.”

Ondong adds the fact that insurance agencies are not evenly distributed in Kenya is another challenge facing the industry.

Fast facts:

  • There are nine life insurance companies in Kenya. UAP Life Assurance Ltd, Apollo Life Assurance Ltd, CIC Life Assurance Limited and Capex Life Assurance Company Ltd are a few examples.
  • There is no insurance premium tax in Kenya. However, a tax is imposed on insurance companies on the gross direct insurance premiums. In addition, an Insurance Training Levy is collected on behalf of the Insurance Training and Education Trust by the Insurance Commissioner of Kenya.

Source: Timetric’s Insurance Intelligence Center