Insurance penetration dips to seven-year low

By Steve Umidha
Tuesday, October 20th, 2020
Health insurance premiums have been on the rise, contributing 77.4pc of industry growth in 2019.. Photo/Courtesy
In summary

Steve Umidha @UmidhaSteve

Insurance penetration in  the country has dropped to 2.37 per cent of gross domestic product (GDP), the lowest in 7 years – on the back of complex life insurance products and lack of integrity among insurance sales agents. 

Also contributing is price undercutting in an industry where players are facing increasingly tough competition.

The market coverage hit its peak in 2013, when it stood at 3.44 per cent of GDP, but has been dropping for seven consecutive years with a consistent decrease in penetration since 2015 – this despite the sector growing at an average rate of 8.27 per cent since that period.

Insurance penetration stood at 2.43 per cent in 2018.

Africa’s insurance penetration currently stands at 2.8 per cent, considerably below the world’s average of 6.3 per cent and highlighting Africa’s potential to catch up, in particular, as international investments in the continent are driving the demand for insurance.

Industry figures released yesterday by the Association of Kenya Insurers (AKI) for the year 2019, show the industry’s gross written premium stood at Sh231.3 billion, compared to Sh216.11 billion the sector recorded a year earlier, a 7.03 per cent overall sector growth.

During the period under review, life insurance premium soared to Sh97.85 billion, compared to Sh87.26 billion in 2018, representing a 12.14 per cent growth in the insurance class.

Non-Life insurance premiums grew to Sh133.45 billion compared to Sh128.85 billion with four major classes motor commercial, motor private, Medical and Fire both contributing 77.4 per cent of the gross written premium (GWP) during the year.

Life premiums

“The remaining nine classes had GWP of Sh30.1 billion. Group Life premiums increased to Sh25.11 billion in 2019 from Sh23.17 billion in 2018 recording an increase of 8.16 per cent compared to a decline of 8.21 per cent in 2018 with an average growth since 2015 at 8.16 per cent,” noted the report. 

In a previous interview, AKI Chief executive Tom Gichuhi acknowledged the industry was reeling from growing losses due to price undercutting practices among insurers – a trend he feels insurers should discontinue debating using the hoary old line about there being an epidemic of dodgy whiplash-related claims. 

“It is greed and the industry must act,” he said, adding that insurance firms are breaching rules on general insurance pricing and policy renewals.

The worrying pattern coupled with the increasing regulatory capital requirements and the growing scope for consolidation, Gichuhi said, would further erode the insurance business and may have a huge long-term impact on the sector’s penetration levels.

Regional market

Further, industry experts believe foreign and local capital is likely to continue to flow into the sector, lured not only by the great domestic potential – access to financial services is still modest – but also by the chance to expand into the sizable regional market.

“A sustained influx of capital will prove crucial, and insurance companies will need to build capital quickly.