Insurance: Hard nut to crack despite improved technology

Growing insurance penetration remains one of the uphill tasks that players in the sector still face amid a growing population and improved technology.

How to crack the code for in the informal sector, who make the majority of the market is also still a major challenge for industry players.

And despite attempts to introduce micro-insurance products, catapulted by technology, insurance penetration still stands at 2.3 per cent.

The sector, from analysis of figures in the technology sector and employment, has enough tail winds to push penetration yet as the economy expands, penetration almost does not move simultaneously.

Conversations with experts in the sector and analysis of the data shows the sector cannot rely on technology alone to increase these numbers.

In some instances, as noted by Bancassurance Association of Kenya chairperson and KCB Bancassurance Ltd Managing Director Aggrey Mulumbi, the need for in-person interaction at the point of sale is still important despite growing digital sales. 

The question is: if smartphone penetration is improving, so is internet access and the industry is witnessing an increase in micro-insurance products distributed using technology, why isn’t penetration increasing as well? Is technology failing to crack this market?

“The challenge is not technology,” says Mr Mulumbi. “The challenge is financial literacy.”

He poses: “Can you solve financial literacy through technology? Yes, and no. Yes, because you can make that information available on google. But do these people really access? Not necessarily.”

The other issue he points out is coverage of internet. “Is the internet available 100 per cent all over the country? There are also various levels of speeds and costs,” he says.

The issue of trust also plays a role, especially to the informal economy who live hand to mouth who not only guard their income selfishly but also have competition interest.

How to reach these individuals is also an issue, he says, referencing the government stipends to the elderly and how it is distributed and beneficiaries enrolled. “Three things are important for mass enrolment: religious affiliation, provincial administration and banking networks,” he says.

He adds: “If the Social Health Authority is onboarding people directly, you and I will be registered via the digital platforms. What about those in the interior part of Turkana? You will need somebody to talk to them. That is why the micro platform must be a blend of the digital and the trusted person who will come to tell them about insurance solutions.”

According to Sector Statistics Report for Quarter Four of 2023/24 by the Communication Authority, as at the end of June 2024, the total number of mobile phone devices connected to mobile networks was 66.1 million - a penetration rate of 128.3 per cent.

“The penetration rate for smartphones and feature phones were 68.3 and 59.9 per cent respectively,” the report says.

As at June 2023, the number of smartphones stood at 30.8 million while feature phones were 32.1 million. This is a ratio of one-to-one for smartphones to feature phones.

This gives the impression that almost three –quarters of the population have a smartphone hence it should be easier for underwriters to reach them.

But that seems not to be the case. CA report shows that of June 2024, total fixed data or internet subscriptions experienced growth driven by increasing reliance on digital platforms for work, education, healthcare and entertainment.

It adds that the total fixed internet subscriptions grew by 7.4 per cent to reach 1.5 million while satellite subscriptions recorded a significant growth of 73.1 per cent in quarter four and a 1,995.3 per cent growth in the 2023/24 financial year.

“This growth is attributed to licensing and subsequent launch of Starlink Internet Services Kenya earlier in the financial year,” the report says.

Yet with these milestones, it is still a challenge to crack the informal sector and lower middle income segments of the market to expand the insurance coverage using technology.

Liaison Group General Manager - Risk and Insurance Brian Rop says there are products that are being embraced easily by these segments of the market such as home insurance and last expense. Others are still hard to sell.

“There are products that require special underwriting and those whose pricing is risk based. It is therefore difficult to simplify them for uptake at the digital market place,” he says.

He adds that with the development of Artificial Intelligence (AI) and its incorporation into businesses, players will soon be able to overcome the challenges of data gathering and processing which will enable accurate risk profiling.

Apart from last expense and home insurance, health, motor, and business insurance, eh says are the other products that are gaining traction in the market.

“It (last expense) comes with a no surprise that uptake of this product cuts across both the informal and lower middle class individuals. This can easily be attributed to the simplicity of the cover and the competitive cost attached with examples of Mfariji Cover by Laison Group,” he says.

Mr Rop discusses how influential technology is in development of products saying such (products) respond to the financial realities of consumers.

Combined with the fact that there were 22.71 million internet users in Kenya at the start of 2024, representing a penetration rate of 40.8 per cent, Mr Rop says technology made them open a digital shop, Insurance Online, to cater for this demographic, majority of whom are below 35 years.

He  notes that in 2023, the informal sector employed 16.7 million people which is 83.5 per cent of total employed individuals in the economy. These figures correspond to the Kenya National Bureau of Statistics (KNBS) 2024 Economic Survey.

“The uptake of products in our digital space by the informal market has been slow,” he says. “There is better traction in the lower middle class individuals that can majorly be attributed to better penetration in insurance knowledge, greater insurable interest and the amount of disposable income.”

Data from the Association of Kenya Insurers (AKI) shows that insurance penetration stands at 2.3 per cent. This has been the figure since 2019 when it was 2.37 per cent, 2.30 per cent in 2020, 2.29 per cent in 2021, and 2.33 per cent in 2022.

The 2024 KNBS Economy shows insurance subsector grew by 12.7 per cent in 2023 compared to 14.4 per cent in 2022. This figure was 26.9 per cent in 2021, 11.7 per cent in 2020 and 9.5 in 2019.

KPMG, an audit and tax advisory firm, in an overview of the Kenya’s insurance sector cites the below three per cent penetration as the third lowest rate in Sub-Saharan Africa. South Africa leads with 17 per cent.

“This is due to most of Kenya’s population perceiving insurance as ‘nice to have-easy to discard’ product rather than one that is essential,” says KPMG.

Fraud cases that affect 25 per cent of claims, is cited as one of the challenges the sector faces in addition to cyber-attacks.

“Companies offering insuretech services such as mobile claims and policy payment services and micro-insurance companies offering low cost products such as funeral and livestock insurance are most likely to succeed in the Kenyan market,” says KMPG.

It has been asserted by industry players that the low insurance penetration in the country is a s a result of the country’s strong growth of the economy.

“It is the economy that is growing much faster than insurance penetration,” said Kenya Re Group Managing Director Dr Hillary Wachinga during an interview on the sidelines of the CEO’s Summit that brought insurance sector players.

This is confirmed by AKI who document the same in their 2020 industry report. “This figure(insurance penetration) has been decreasing since  2017 which could be due to GDP growing faster than insurance premiums,” reads the report.