Insurers turn to low-end niche to boost profits

For example, Jamii Bora, a microcredit group with focus has a health micro insurance product for its members.

Out of 300,000 members, at least 160,000 have bought the product.

“It is a growing area that is offering a growth potential and opportunity to reach more people for the mainstream insurance companies,” said James Irungu, the Micro-Insurance manager at British American Insurance.

The opportunity in micro insurance is seen in the fact that, 98 per cent of people across the world who earn a maximum of Sh150 every day are not insured yet they can afford micro insurance products — that cost an average of Sh30 per week in Kenya — according to a study by the International Labour Organisation.

The dominant feature of micro insurance products in the market is that they are ‘embedded’ in other products like microcredit and farm inputs.

The cover therefore exists only when the beneficiary is a client to a specific microcredit company.

Players blame lack of renewal of micro insurance policies to the “barter trade mentality” that if one pays a premium, they have to get a service and if for example they do not get sick — in case of health insurance.

Moses Banda, the CEO of MicroEnsure, said non-embedded voluntary products are possible because they already exist in Tanzania, Uganda and India.

Insurers also face the challenge of reasonable pricing of the insurance products that target a market that is extremely price sensitive.

Local players said actuarial scientists here have less regard for micro insurance products and their pricing models are way above what the target market can afford.

“The best way is to have an in-house actuarial scientist who is able to understand the direction of the company and therefore has better understanding in shaping the product,” said Mr Kuria.

Some risks are also are considered too high by the reinsurers and therefore their cost of insurance also goes high.

In the most recent case of livestock insurance product for Northern Kenya, the reinsurance cost was Sh616 compared to the cost of the cover at Sh693.