More accessible insurance good for Kenya

It is hard to fathom life without insurance. How would we mitigate tragedies such as accidents, illness, theft, fire, floods, or access compensation for injuries to person or damage to property? Medical insurance would not exist as we know it. Business would grind to a halt, unable to cope with the financial losses stemming from unforeseen disruptions. 

Insurance acts as a financial buffer against the vagaries of life by enabling individuals and businesses to manage risks. But many still do not appreciate the special role insurance plays in virtually every facet of life. Ignorance of how insurance works coupled with inability to afford premiums are often cited as barriers to insurance, especially among the poor. 

Some cultural beliefs have also exacerbated low insurance uptake. In traditional African society, where it is considered taboo to plan for one’s demise, life insurance remains a largely alien concept. Many people also depend on extended family for financial support during illness and hence see no need for medical insurance.

Another factor is lack of trust among consumers as a result of malpractices such as fraud and failure by insurers to settle claims. 

According to the Association of Kenya Insurers (AKI), insurance penetration – defined as gross premium as a percentage of national GDP – stood at a paltry 2.9 per cent in 2014, way below the global average of 6.5 per cent.

This denotes a huge gap in risk coverage in the country. Conversely, it also reveals significant potential for the insurance industry to grow by tapping into the vast, uninsured market. 

Fortunately, the economic fundamentals favour the insurance industry. Rising population, expanding middle class, and rapid urbanisation have been identified as strong growth drivers. However, there is still a need to surmount barriers to insurance uptake while addressing information asymmetries (such as lack of knowledge) that exist in the market. 

CAN'T AFFORD INSURANCE

The 2016 FinAccess Household Survey conducted by the Kenya Financial Sector Deepening Programme (FSD) revealed some disturbing facts about insurance in the country.

Among participants in the survey who were asked why they did not have a policy, 40 per cent said they do not know about insurance. An almost equal number (35 per cent) cited inability to afford insurance. Nine per cent said they do not see the benefits of having insurance.

This knowledge gap can best be addressed through consumer education and this requires concerted collaboration among all industry stakeholders.

Much needs to be done to create an enlightened consumer who readily appreciates the value of insurance in managing risks to life, health, and property.  

We also have to devise innovative ways to enable consumers to gain access to insurance. This entails enhanced use of technology, including mobile phones and online platforms, to make insurance services affordable and accessible to all, as has happened with banking to achieve high levels of financial inclusion. 

Increasing insurance coverage has economic benefits, including improving human productivity and reducing the financial burden on households. It also helps businesses, large and small, to better manage risks, thus achieving sustainability. 

By creating more awareness and fostering innovative ways to engage the sceptical insurance consumer, we can push insurance penetration in Kenya way beyond the target of five per cent of GDP outlined in the Vision 2030 initiative. 

Mr Muindi is the CEO of Kenya Orient Insurance Limited. [email protected].