Insurance penetration in Kenya


Outlook:

Unlike its close cousin, banking, insurance industry in Kenya still has a relatively low market penetration rate. As of 2023, Kenya’s insurance penetration rate stood at 2.3%, according to data by KNBS. Though ahead of its East African neighbors, Kenya still lags behind the regional leader, South Africa, which boasts of an insurance penetration rate of about 10%.

The recent Insurance Outlook Report 2024 by Delloite shows a steady growth in both the gross written premiums and return of equity for life insurance market in the post-COVID era. This is positive trend is expected to boost investor confidence in this segment. For the general Insurance, the gross written premiums has also shown a continued increase since 2015. Despite this, there has been a sustained decrease in return on equity meaning that investors are not getting enough bang for their buck in the general insurance. This negative trend has been attributed to fraud in claims and significantly low premium growth compared to overall economic performance.



Key Drivers of Change

IFRS 17

The International Financial Reporting Standards 17 became operational on 1 January 2023 effectively replacing IFRS 4. IFRS 17 mandates that entities report insurance liabilities in a way that reflects a balanced and unbiased view of their financial position—neither overly conservative nor overly optimistic, but grounded in a faithful representation of future cash flow. This transition has come at a cost since companies have been forced to outsource labor to ensure compliance which is expensive. Additionally, some notable insurers had to delay their quarterly reports.

Nonetheless, adoption of this new standard presents a lot of opportunities for growth, transparency and comparability for the benefit of all stakeholders.

ESG compliance

Environmental, social and governance is also a noteworthy recent disruptor of the industry. Investors are shifting away from conventional practices of selecting investments solely on profit maximization and are now incorporating other factors such environmental impact, social responsibility and also best practices in management. To attract investors and also to bear responsibility in the face of climate change, it is imperative that insurance industries adhere to ESG compliance.

 Artificial Intelligence and Data Analytics

Advancement in AI is reshaping the insurance market in terms of claims, underwriting and pricing. Data is the new oil in town. With vast availability of data and advancement in data analytics, insurers are now making decisions which are data driven. Combined with data analytics, AI has now enabled insurance companies easily detect fraud, faster processing of claims, tailoring insurance products according to consumer needs and to identify consumer trends as far as insurance and risk mitigation is concerned.

 

Closing thoughts

For improved insurance penetration in Kenya, which is still below global averages, embracing technological advancements and aligning with international best practices is inevitable. By digitizing most of insurance processes, we can easily insure the uninsured population. Adopting global standards will also enable the industry measure performance effectively, both internally and against other markets.

 By Justus Kipkoech

(DCEO, The Kenyactuary)

 

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