Policyholders cash out Sh13bn amid economic hardships
The number of customers skipping payments, added to those opting out in entirety, has come in an environment of falling disposable income as the government introduced several new deductions and enhanced others.
Insurance customers cashed out Sh13 billion in the year ended December 2023, being the highest in two years as they utilised pension and other investment savings, to meet daily needs amid economic hardships.
Latest data from the Insurance Regulatory Authority (IRA) shows the figure, made up of surrenders and withdrawals, was a 2.5 times rise from Sh5.15 billion a year earlier.
The latest cash out is the highest since 2021 when the figure stood at Sh17.12 billion as Covid-19 pandemic disruptions lingered.
Surrenders in insurance refer to totally abandoning insurance policies such as education cover and cashing out the accumulated amount, while withdrawal refers to making partial cash out from products such as unit-linked policies and pension without fully pulling out of the cover.
Many customers opted for withdrawals, raising the amount 5.5 times to Sh10.23 billion from Sh1.85 billion a year earlier, according to the IRA report published this week.
However, surrenders fell by 16 percent to a four-year low of Sh2.78 billion as customers avoided the penalties that come with abandoning covers along the way.
The surrenders and withdrawals, added to claims, bonuses and annuity payments took the total claims and benefits paid out by insurance firms to Sh94.13 billion or a 14.6 percent rise from Sh82.13 billion a year earlier.
“Claims include payments for death and maturity proceeds, while withdrawals relate to pension and some investment classes of business,” said the IRA.
The 2024 FinAccess Household Survey, a product of Central Bank of Kenya, Kenya National Bureau of Statistics and Financial Sector Deepening Kenya, backs the IRA data on surrenders and withdrawals.
The survey, published last December, showed nearly half (44.1 percent) of customers who had tapped insurance as at November 2024 skipped paying premiums.
This came in the period 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.
According to the survey, the defaulted premiums were linked to falling disposable income, or, lack of awareness on implications of defaulting in premium payments.
The number of customers skipping payments, added to those opting out in entirety, has come in an environment of falling disposable income as the government introduced several new deductions and enhanced others.
Effective October last year, the government started deducting workers 2.75 percent of gross pay to fund social healthcare programmes.
This came months after the government in February 2023 doubled contribution towards the National Social Security Fund to Sh2,160. In 2022, workers were hit with a 1.5 percent housing levy on gross pay.
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.
