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Microinsurance is Kenya’s best bet to deepen penetration

insurance
Formal risk management solutions such as insurance can be a potential solution. FILE PHOTO | NMG 

More than one-third or 36 percent of Kenyans are exposed to numerous risks such as economic shocks, death, illness and loss of property due to natural disasters and calamities.

This high incidence of shocks revealed by FinAccess Household Survey 2019 underpins the urgent need for risk management solutions for individuals, households and businesses.

Formal risk management solutions such as insurance can be a potential solution.

Yet, the FinAccess survey also found that only two percent of Kenyans used insurance as a solution to deal with shocks.

These findings highlight the huge gap between risk protection needs and insurance outreach in Kenya, which egged on penetration to 2.43 percent of Gross Domestic Product (GDP) -- the lowest in 15 years.

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So, what is the reason for this huge gap? Digging deeper, there is a huge disparity in insurance uptake among different income segments.

While there is reasonably high usage among the highest income segment (53 percent), it is quite low among the lower-middle and middle income segments (16 percent and 28 percent respectively).

These two income segments that can be identified as emerging consumers (earning between Sh 20,000 to Sh55,000 per month) constitute the highest proportion of Kenya’s population.

However, this segment has stayed away from insurance and opts for traditional, inadequate risk mitigation mechanisms such as social networks to meet spiralling medical, school and funeral costs through harambees.

But such traditional community ties are fast weakening amid the urban bustle and many are now wishing they had secured an insurance payout, rather than relying on the goodwill of others.

This means that a huge chunk of Kenyans remain unprotected against major shocks, while the insurance industry also stays underdeveloped.

Focusing on these emerging consumer groups is key to unlocking insurance potential as they have growing incomes and constitute the highest proportion of the population.

But first, there is need for public policy interventions to stimulate the insurance sector. Among other initiatives, this can include conducive regulations and government spending to insure vulnerable groups.

Then, and most importantly, the insurance industry itself has to expand its horizons by not just focusing on limited population of high, higher-middle income individuals.

For insurers, the sheer number of potential customers in the low-income bracket makes this an attractive market.

And this is where microinsurance comes on board.

The low-income segment can be served well by offering products whose coverage is lower in value than the usual insurance plan and offers considerably smaller premiums that are attractive to the bottom end of the market.

This needs a shift in insurers’ mindset and a deliberate application of technology and product innovation to offer attractive value propositions.

Unlocking market potential requires targeting uninsured people, particularly the low-income households, resting on technology akin to how Safaricom’s mobile money had transformed the notion of “unbanked” in Kenya.

The writer is Britam Microinsurance General Manager.

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