Nairobi has cemented its status as the largest source of insurance premiums, pointing to the growing unexploited markets outside the capital city.
The county took up an estimated 80.67 percent of total premiums in 2018, up from 72.76 percent the previous year, despite contributing only 21.7 percent to national wealth.
Latest data from Insurance Regulatory Authority (IRA) shows Nairobi handed insurers Sh173.2 billion premiums while the other 46 counties fetched them a combined Sh41.5 billion.
This means the 54 insurance firms were mainly chasing for the same clients in the capital city leaving the rest of the counties despite growing insurable risks.
Mombasa, Kenya’s second biggest city, only accounted for Sh10.6 billion or 4.83 percent of the total Sh214.66 billion premiums last year, followed by Kiambu with 2.25 percent or Sh4.82 billion.
Nakuru came fourth, earning insures 1.69 percent of premiums followed by Kisumu city with 1.44 percent, Nyeri and Uasin Gishu with 1.24 percent and 1.23 percent respectively.
The rest of the counties contributed premiums of below one percent.
The result is that insurance penetration in the country has dropped to 2.43 percent of Gross Domestic Product (GDP), the lowest in 15 years, made worse by poor marketing, price undercutting and fraud among other challenges.
Penetration has been dipping for five consecutive years, showing that the sector has not been successful in riding on the growing opportunities presented by the expanding economy across the counties.
Kenya Association of Insurers (AKI) chief executive Tom Gichuhi admits that the penetration level is not keeping pace with GDP growth.
Data from Kenya National Bureau of Statistics (KNBS) shows that Nairobi County contributes 21.7 percent of Kenya’s GDP, qualifying Mr Gichuhi’s take that insurers are lagging behind in availing themselves of opportunities in the rest of the counties.
Latest Gross County Product (GCP), a measure of how much each county contributes to Kenya’s GDP, shows that Nairobi has in fact been losing its share of contribution to GDP as the other counties develop.
Counties associated with thriving economic activities such as agriculture, manufacturing, transportation, financial, real estate and wholesale and retail trade, took lead in the ranking by GCP.
While Nairobi takes the lead in GCP, it is followed by Nakuru (6.1 percent), Kiambu (5.5 percent) and Mombasa at 4.7 percent.
“Nonetheless, many of the counties with a small share to GDP are growing at a faster rate, signifying potential for catch-up but also due to the base effect,” KNBS says in the GCP report for 2019.
It adds that counties with a lower base have a greater potential for faster growth relative to counties starting at a high base. This presents immense opportunities for insurers that will look beyond Nairobi in the coming years.
Further, counties that are largely dominated by urban centres, notably Nairobi City and Mombasa, have had their shares of GCP consistently decline over time.
“On the other hand, counties with strong presence of agricultural activities, particularly horticulture, have consistently improved their share of GCP over the period,” says KNBS.
Over the period 2014-2017, at least 17 counties recorded a faster growth in their real GCP relative to the average growth in all counties (5.6 percent).
With the exception of Nairobi City and Mombasa counties, agriculture has been a key driver of growth in most devolved units.
Yet, insurers have not been keen to take up insurance opportunities in this sector that accounts for about a third of the country’s GDP.
Only 10 insurers- Amaco, APA, Heritage, Kenya Orient, Madison ICEA Lion, Jubilee, CIC, UAP and Takaful- offer the cover for crops and livestock in a country whose economic growth is heavily hinged on agriculture.
Last year, gross written premiums from agricultural insurance reduced to Sh716.2 million from Sh822.7 million in 2017, a decline of 12.95 percent. An AKI report shows part of the challenge has been high loss ratios, averaging 97 percent.
Counties with huge agricultural potential include Nakuru, Nyandarua, Kiambu, Elgeyo Marakwet, Meru, Narok, and Bomet, according to KNBS.
Overall, while the service sector drives 54.6 percent of counties’ economic activities, agriculture follows at 24 percent and industry at 21.4 per cent. KNBS says agriculture is the most spread across counties.
Industrial activities such as manufacturing activities are mainly concentrated in urban counties, namely: Nairobi, Kiambu, Mombasa, Machakos, Kisumu, Nakuru, and Kajiado.
Untapped opportunities for industry sector development are still abound in Lamu, Samburu, Isiolo, Tana River, Elgeyo Marakwet, and Baringo, adding to another future market for insurers.
The presentation of GCP per sector provides missing information to private sectors interested in investing in a specific county and may help in making targeted investments, which will require insurance services.