Markets & Finance

Insurance take-off lifts Kenya prospects

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Lucy Abungana (standing) registers for a National Hospital Insurance Fund cover at Kibera DC grounds in Nairobi March 12, 2014 after NHIF launched its informal sector drive. Photo/Jeff Angote

Kenya’s quest to become a middle-income economy in another 15 years has received a big lift from increased uptake of social security products.

Data from a financial access monitor shows that the coverage of medical, life, education and retirement covers expanded — in some cases doubling — over the past five years on the back of improving economic fortunes, financial literacy and multiple distribution channels.

The FinAccess data shows a leap in the uptake of medical, life and education policies which provide social security. The products had been for years been shunned by Kenyans owing to cultural beliefs and financial constraints.

READ: Kenya ranked high in insurance uptake

“There is economic empowerment but the main reason is awareness — Insurance Regulatory Authority has been training agents throughout the country so there are more people talking about the need to take up insurance,” said Association of Kenya Insurers pensions committee chairman James Oyugi.

The number of persons accessing life insurance rose to 1.4 million in 2013 from a million four years earlier, while those with education policies doubled to 1.2 million. Private medical insurance covers also doubled to 1.5 million in the same four-year period.

The number of senior citizens opting for regular monthly payments through retirement annuities as opposed to a one-off pension settlement also went up to 1.6 million from 1.2 million.

“Before people did not know what annuities were. The rates may not be so good but it is better because you are assured of some income for the rest of your life,” said Retirement Benefit Authority chief executive Edward Odundo.

Membership of the statutory National Social Security Fund (pension) and National Hospital Insurance Fund (medical) also rose from 2.9 million and 4.3 million, to 9.6 million and 15.6 million, respectively, over the period.

Retirees were a major burden in many households with most of them wasting the bulk payments collected from the pension fund only to turn to their children to support them.

The growth is a major shift from the past when most Kenyans left their fate to relatives and friends whom they believed would support them if they fall ill, in old age or donate for their children’s higher education.

In addition to contributing to personal financial security, the products provide a pool of cheap long-term funds that local institutions can draw from for investments, starting a cycle that leads to more jobs and improved economic welfare. Funds mobilised through social security also chokes the dependency syndrome that manifests itself in Kenya through fundraising for medical and education bills and even funeral expenses.

“Availability of social security is a measure of economic progress — more importantly money for social security is a major source of investment. It is time we focused on it,” said economist Dr X.N. Iraki.

The Nationals Savings Rate stands at 13 per cent of total income and is required to consistently be above 30 per cent for Kenya to achieve a newly-industrialised nation status.

Insurers have invested Sh181 billion held under life insurance with half of the amount loaned out to the Government through Treasury bonds and bills.

Dr Iraki, however, says the social security framework needs to be developed further to tame corruption, which is usually a sign of people looking for security by hook or crook.

Insurance and pension has also benefited from the loosening of the social fabric which has seen families and friends become less willing to help in times of distress, forcing individuals to save for times of need.

NSSF and NHIF have opened their doors to voluntary membership, which has seen those in self-employment also take up the scheme. The Mbao pension scheme, which allows individuals to save as low as Sh20 a day, had 104,000 members as at June last year.

The two national social funds have also been aggressive in recruiting members which has seen them work with social groups such as churches to increase their collections.

“The assets and membership of the individual retirement benefits schemes also grew considerably during the period from 75,402 members in June 2012 to 103,977 members in June 2013 while the assets grew from Sh12.1 billion in June 2012 to Sh16.6 billion in June 2013,” said Retirement Benefits Authority (RBA).

Religious beliefs had also seen some people avoid insurance products. Muslims, for instance, have long avoided insurance and retirement products that were not Shariah compliant.

This has been resolved by the licensing of institutions that offer Shariah compliant products such as the First Community Asset Manager and Takaful Insurance.

READ: Sharia insurer gets approval to underwrite life policies

Increase in distribution outlets of insurance products has also helped increase uptake with a recent research by IRA indicating that 80 per cent of policies were sold by agents. NHIF even collects premiums for the voluntary scheme through churches.

Banks are also using their wide branch network to sell insurance products through bancassurance services, helping salvage the reputation of insurers that had been dented by claims defaults. Beginning June, NSSF collections are expected to rise further with the coming into effect of new laws that peg individual contribution to income from the current flat rate of Sh400.

NHIF has also been pushing to increase contributions but an injunction forced the new rates to be suspended.

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