The number of customers skipping payments, added to those opting out entirely, has come in an environment of falling disposable income as the government introduced several new deductions and enhanced others.
Insurance customers increasingly defaulted on premiums as others opted out completely due to economic hardships in the year to November 2024, leaving millions of Kenyans without any form of protection when risks such as accidents, sickness and theft occur.
The latest survey on the well-being of Kenyans shows nearly half (44.1 percent) of customers who had taken insurance as at November 2024 had their claims denied as a result of having defaulted on the monthly premiums that are supposed to keep their covers active.
The 2024 FinAccess Household Survey, a product of Central Bank of Kenya, Kenya National Bureau of Statistics and Financial Sector Deepening Kenya, linked many of the skipped payments to economic hardships.
“The most common reason [why claims were not paid] was overdue premium payments, as cited by 44.1 percent of the respondents, with men being more affected by this issue than women at 45.5 percent and 42 percent, respectively. This could be attributed to falling disposable income, or, lack of awareness on implications of defaulting in premium payments,” said the survey.
It further showed the population using insurance, excluding social health insurance, declined by about 130,000 to 1.77 million compared with 1.9 million three years earlier.
This opens a huge protection gap in a country where 70.5 percent of households already lack any form of insurance.
The uptake of insurance stands at a mere 2.39 percent.
The number of customers skipping payments, added to those opting out entirely, has come in an environment of falling disposable income as the government introduced several new deductions and enhanced others.
Effective October this year, the State started deducting workers 2.75 percent of monthly gross pay to fund social healthcare programmes. This came months after the government in February this year doubled contribution towards the National Social Security Fund to Sh2,160. Last year, workers started contributing 1.5 percent of their monthly pay to the housing levy.
The increased or new compulsory deductions has left households with a narrow room to fund basic needs such as rent, food and education and still keep up with payments towards insurance policies to secure their lives and livelihoods. This has been worsened by inflation rate averaging above pay rise rates for four straight years.
“In 2024, the population using insurance (excluding NHIF) declined by about 0.13 million from 1.9 million in 2021 to 1.77 million in 2024. This could be attributed to the declining disposable income among the population,” said the survey.
The effects of declining disposable income has spread beyond insurance, with the survey showing that households were tapping more debts and slowing down or giving up on savings and investments.
According to the survey, while credit usage rose to 64 percent from 60.8 percent, the population of savers declined to 68.1 percent from 74 percent —the first decline since 2009. The survey findings indicate that 90.5 percent of those who stopped saving cited financial constraints while 18.2 percent mentioned loss of income.
The same period also witnessed a significant growth in the proportion of the population that stopped using pension products, with the figure jumping to 8.6 percent this year from 4.6 percent in 2021.
“This can be explained by loss of jobs and the general reduction in disposable income caused by the recent economic shocks,” said the survey.
