The insurance sector in Kenya is set to experience faster growth as it rides on technology and mobile financial service distribution channels to deepen reach to customers.
Standard Investment Bank (SIB) said on Wednesday insurers that adopt technology and partner with mobile phone companies and banks to reach customers will realise higher premium growth at lower costs, widening their profit margins.
“We believe the insurance sector is next in line to benefit from increased financial services penetration, ignited by aggressive low-income or micro-enterprises banking initiatives and explosion of mobile money transfer,” said Job Kihumba, executive director of corporate finance at SIB.
He was speaking during an investor briefing at which the investment bank launched its coverage on the sector. There are six insurers listed on the Nairobi Securities Exchange.
Mr Kihumba said that the middle class has been growing and currently accounts for between 10 and 15 per cent of the population, compared to six per cent a decade ago, adding that this population has opened up new doors for the sector.
“The expansion in the middle class, whose need for wealth protection and saving is increasing, provides an opportunity for insurance firms,” he said.
SIB in a report that was released on Wednesday said that a limited distribution network has been a key hindrance to increased insurance penetration, which currently stands at about three per cent compared to South Africa’s 11 per cent.
Mr Kihumba said that the Insurance Regulatory Authority (IRA) had over the past seven years instituted legislation which is helping companies in the sector remain stable and also making the industry more profitable.
He said that increased minimum capital requirements have improved capitalisation and strengthened solvency and that setting of minimum premiums chargeable for certain classes of business has reduced undercutting and unfair competition.
“In order to compete effectively and boost operational efficiency, majority of the insurance companies are investing in new information technology platforms and introducing shared service centres,” notes the SIB report.
Kenya’s insurance industry has 45 companies, 22 which are the general and short-term insurance business, nine which offer life insurance and 14 composite companies.
According to the investment bank, the short-term insurance space is fragmented with the top five companies controlling 40 per cent of the market with the single largest market share of 10.98 per cent being held by Jubilee Insurance.