Today in the first part of the series, it seems laughable what industry bigwigs say, thinking merely that they need creative ways to reach the uninsured.
When approached with insurance proposals, huge proportions of Kenyan surveyed or focus grouped decline to purchase coverage with access and reach not even featuring as a top five issue.
Not understanding one’s customer is as bewildering as if a prospective diabetes doctor proposes to increase the number of sugary snacks as a way to decrease obesity rates.
PART 1
The Business Daily posted an interesting piece this week titled IRA proposes law change as insurance penetration falls. The Insurance Regulatory Authority claimed that it intends to both change how technology is utilised in insurance but also protect consumers in its new law.
The article blamed in large part a lack of “innovative means to reach the uninsured”. Stop the press. Is this surely the issue? This author would argue no, it is not. Join Business Talk here in the Business Daily on a four-part series on boosting insurance coverage here in Kenya.
Today in the first part of the series, it seems laughable what industry bigwigs say, thinking merely that they need creative ways to reach the uninsured.
When approached with insurance proposals, huge proportions of Kenyan surveyed or focus grouped decline to purchase coverage with access and reach not even featuring as a top five issue.
Not understanding one’s customer is as bewildering as if a prospective diabetes doctor proposes to increase the number of sugary snacks as a way to decrease obesity rates.
In focus group after focus group, the issue of insurance uptake boils down to one word: trust. In the Kenyan population, we trust the ability of multiple mechanisms, whether friends, families, chamas, NHIF, harambees, etc., to support us and build our resiliency during crises instead of private insurance companies.
An extremely useful conversation must revolve around why is trust in insurance companies so low in our general population. Look back in your WhatsApp group messages for the past two years.
The vast majority of us can see a few colleagues or friends with complaints or struggles over insurers trying to get out of paying claims. In a more collectivist society like Kenya, when one of us in our social groups has a problem, we rush together to support them.
The very idea of someone or some entity who pre-agreed to support someone in crisis trying to get out of their commitment during troubled times is so distasteful that it flies in the face of our cultural norms.
Further, anti-consumer behaviour that threatens perceived safety stays in the psychological memory of the purchasing public far longer than other types of corporate missteps.
The insurance sector can adapt researchers Roger Mayer, James Davis, and David Schoorman’s model of organisational trust.
Human trust in organisations can be boiled down to three core themes: the ability of the organisation to fulfill its mandate, the benevolence of the organisation to act in its customers’ best interests, and the integrity of an entity to do the right thing.
So, let us investigate the insurance sector with particular attention to health covers utilising the ability, benevolence, and integrity framework.
First, how do consumers perceive the insurance sector’s ability to fulfill its mandate? Consumers doubt whether insurers have the ability to payout claims. In order to improve these perceptions, IRA introduced higher minimum capital requirements in 2015 and ownership requirements in 2009.
But from an organisational psychology perspective, these changes had little effect. Those consumers who might be aware of these changes could look upon them as unfair to small consumer-centric insurers who held high pro-consumer abilities.
A niche insurer with 500 or 700 clients, as an example, must maintain the same minimum capital requirement as an insurer with 400,000 customers.
The minimum capital requirements range from Sh400 million to Sh1 billion depending on the type of insurer, then with capital adequacy ratios and solvency margins above the threshold.
But in contrast, many policyholder-owned insurance companies in the United States that safely insure millions of their citizens, as a comparison, would not even be allowed to operate in Kenya with the requirements here.
By 2020, over twenty Kenyan insurance companies, some consumer-favourites, were still unable to comply with the arbitrary requirements.
Capital adequacy ratios and solvency margins make absolute sense for insurers and are best practices in regulation, but the fallacy that size equals better is not necessarily true and therefore minimum capital requirements regardless of customer size seems demonstrably ludicrous.
Then back in 2009, IRA forced changes that by 2012, an investor could no longer hold more than 25 percent of an insurance company.
A potential unintended affect led to many investors staying out of the sector since they could not have control of the direction and strategy of a company they might place considerable investment in. Venture capitalists often want control of firms in exchange for their ability to pump in innovative creative new solutions and practices.
Finally, an overarching opinion might stand that the sector does not have the ability to handle its own cashflows or adjust its risk. Many other countries allow health, vehicle, property, and other insurance premiums to be paid monthly.
However, the standard convention here in Kenya, with a few exceptional examples, is to force consumers to prepay an entire years’ worth of premiums upfront.
When confronted, insurers come up with many excuses how the Kenyan consumer cannot be trusted to pay monthly but not claim benefits too soon. But other countries successfully insure their consumers with monthly premiums. Are we as Kenyans less worthy of trust by our insurers?
If the insurer cannot trust the insured, then the insured will not feel trusted and lack the feeling of reciprocity. Instead, innovative solutions could include regulators looking at laws requiring continued payment of monthly premiums for an entire insurance contract if benefits are paid out instead of the few sneaky customers paying for a month or two, collecting benefits, then backing out.
Or allowing two-year contracts with monthly premiums but benefits not collectable until month six, for example. While not ideal, the correction of cashflow problems for consumers would increase perception of consumers that insurance companies have the ability to meet their needs. Consumer cashflow challenges around annual premiums stands as a significant roadblock to insurance uptake in Kenya.
Join us next week as Business Talk delves into benevolence trust failures of the insurance sector to be followed in parts three and four of the series on integrity failures followed by trust repair to boost insurance uptake and expand acceptance and coverage.
