Mergers loom in insurance sector as firms seek edge
AAR Insurance group chief executive Geoffrey Nzau (left) with chairman Kiprono Kittony at the launch of the ‘Proactive’ insurance cover in Nairobi on May 19, 2015. PHOTO | DIANA NGILA
What you need to know:
Deloitte East Africa says stiff competition will force insurance firms to rethink their business model.
Kenya has 49 licensed insurers despite its total insurance premiums standing at only three per cent of the gross domestic product.
Analysts have previously warned the local insurance market risks losing out on business from the oil sector due to low capital.
More mergers and acquisitions are expected in Kenya’s insurance sector this year as competition picks and underwriters seek to raise efficiency, global consultancy Deloitte has said.
Capital injections from investors who have recently entered the insurance sector is set to lead to intensified competition undermining the ability of established insurers to raise premiums or in some cases hold them flat.
“The M&A will further force smaller players to rethink their business models or even consolidate due to lack of economies of scale,” said Thomas Njeru, director Deloitte East Africa.
Kenya has 49 licensed insurers despite its total insurance premiums standing at only three per cent of the gross domestic product.
Increased uptake of insurance, resulting from a growing middle class seeking social security combined with the nascent oil and gas sector, has attracted international investors into the market.
Partnership between insurers and the traditional banking sector in offering insurance covers — under the bancassurance model — is seen as another frontier of growth.
Total premiums collected by the industry last year grew 22 per cent, which was one of the highest globally, to Sh157 billion, according to data from the Insurance Regulatory Authority.
Shareholder’s funds in the sector stood at Sh122 billion last year up from Sh98 billion underlining the capital injections.
Analysts have previously warned the local insurance market risks losing out on business from the oil sector due to low capital.
Over the past three years the sector has witnessed several acquisitions, the most recent being the planned purchase of an estimated 11 per cent stake in reinsurer Zep-Re by World Bank’s investment arm International Finance Corporation for Sh1.9 billion.
Last year, German-based DEG purchased 11 per cent of the regional reinsurer for Sh1.3 billion.
UK based Old Mutual has acquired a majority stake in UAP Insurance while Pan Africa Insurance bought Gateway Insurance to reenter the general business. Moroccan Saham Group acquired Mercantile Insurance last year.
“Going forward, premium growth is likely to accelerate and capitalisation increase supported by the capital inflows from multinational insurance corporations,” said Insurance Regulatory Authority in its 2015 outlook.
Stronger balance sheets of insurance companies are likely to improve public confidence in the industry with more capital resources being available to cover losses.
Low public confidence owing to collapse of insurers has previously been cited as a major cause of poor uptake of insurance covers.
Mr Njeru said the increased investments and consolidation in the industry should lead to innovations and improved efficiencies which if passed to consumers would increase insurance penetration.
On Tuesday, AAR launched a cash-back cover that allows policyholders to receive over 50 per cent of total premium paid after three years if they do not utilise the entire cover in a move aimed to encourage uptake of medical insurance.
Deloitte has urged the insurers to invest more in data analysis which will help them structure more competitive products.
The consultant expects insurers to take a more direct approach in marketing by cutting out intermediaries particularly to target younger, lower-income, and other underserved segments.
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