Want to be self-reliant? Maybe it’s time you bought insurance

Depending on who you speak to, wedding committees are either the greatest thing since sliced bread or the worst possible excuse to extort money from law-abiding citizens.

If well thought out and executed, wedding committees ease the burden of organising for an event and bring friends even closer.

However, ill-conceived committees end up straining great friendships and may force the couple to source credit to fund an event that is beyond their budget.

Take the example of Tony (name altered for confidentiality) who has never attended any of his friends’ fundraisers but wastes no time inviting them to his own committee.

In fact, he goes ahead to stratify his friends with each given a contribution target depending on how many zeros are on one’s pay cheque.

Comments like “If my own wedding only cost Sh200,000 and I had to sell my rickety car to fund this, who are you to ask us to raise Sh800,000?” are whispered between Tony’s ‘friends’ before the start of the first meeting.

Needless to say that most friends would not bother attending subsequent meetings to avoid unnecessary ‘social robbery’.

Tony’s case highlights a common belief, at least common here in Kenya and indeed in Africa, that one should always have a close network of friends to fall back to in the event of an ‘emergency’. Let’s call this ‘community insurance’ for now.

‘Community insurance’ threatens to undermine efforts of traditional insurance products and could be one of the reasons behind the low financial inclusion statistics in the region.

Insurance penetration in Kenya stands at 2.9 per cent, compared with the global average of 6.2 per cent as per the Swiss Re Sigma No 4/2015 report. This statistic is partially improved due to the uptake of mandatory policies including motor.

Savings and protection life insurance products only stand at one per cent of the insurance penetration statistic in Kenya, which is far below the global average of 3.4 per cent as per the same Swiss Re report.

But, given that ‘community insurance’ is already in place, is there need to take up traditional insurance policies as is common in more advanced economies?

Relying on the community would only work well if the terms of engagement clearly defined the expectations and responsibilities of each party… which to me, sounds like a traditional insurance policy.

Tony, like many others in our credit-laden society, could have benefited from taking up a three-year savings plan with a bank or insurance company.

For example, if he took a three-year endowment cover with an insurance company, he would be able to save for his wedding, while still protecting his dependants in the unfortunate event that he passed on.

So, there are many ways of minimizing one’s losses in this world, but it may well be high time we all bought insurance.

Mr Chengo is a resident actuary with Alexander Forbes specialising in insurance consulting and broking.