A steep rise in demand for life coverage – traditionally a smaller segment than non-life lines – has been driving growth in Kenya’s insurance sector over the course of 2017.
In the first half of the year the long-term, or life, insurance segment posted year-on-year (y-o-y) growth of 26.1%, according to data released in October by the Insurance Regulatory Authority (IRA), outpacing general insurance, which expanded by 6.3%.
Life insurance products accounted for 37.7% of gross premium income in the first half of the year, up from 31.5% in the same period of 2016. In the reinsurance segment, the share of life premium income rose from 14.8% to 15.8%.
General insurance still accounts for the majority of income, with a 62.3% share of premiums and 84.2% of reinsurance income in the first half of this year.
Rising demand for life products contributed to 13% y-o-y growth in insurance premiums over the period to KSh109bn ($1.1bn), according to the IRA.
The figures indicate that growth is picking up in the insurance industry, following a lacklustre performance in the last few years as insurers struggle to expand coverage in the large informal economy.
While premium growth is on the rise in Kenya, penetration stands at just 2.8% of GDP, highlighting the industry’s substantial growth potential. Although penetration is low, the insurance market is among the most advanced in sub-Saharan Africa; neighbouring Ghana, Nigeria and Tanzania all have rates below 2%. South Africa, which has a penetration of 13%, well above the global average of 6%, is the region’s leader.
The sector is aiming to catch up with global norms, with the Association of Kenya Insurers (AKI) targeting a penetration rate of 6% by 2020. Speaking to the press last September, Patrick Tumbo, chairman of the AKI, said untapped sectors, including energy, property, agriculture and infrastructure, present a significant opportunity for growth.
One of the primary ways insurers are hoping to do this is through new modes of distribution. Alternative distribution channels, such as bancassurance or mobile insurance, are gaining traction among insurers as a way to diversify revenue streams and reach more retail consumers.
Since bancassurance was introduced in 2015 the IRA has registered 26 bancassurance agents.
Most recently, Sanlam Kenya signed a deal in October with Standard Chartered Bank Kenya for the sale of general insurance products. The agreement, which initially targets underwriting business in motor, private and household insurance, modifies an existing deal involving the sale of life insurance.
According to Lamin Manjang, the CEO of Standard Chartered Bank Kenya, partnerships between banks and insurers allow both sides to benefit from reduced costs and increased market profile.
“Kenya’s competitive financial sector, coupled with regulatory changes, has made the need for income diversification for banks,” he said at the signing of the deal. “Bancassurance business has become a very key pillar in terms of our income diversification strategy.”
Expanding customer bases and diversifying revenue streams is becoming increasingly important for insurers, as higher capital requirements and an already congested market make the prospect of mergers and buy-outs in the near term more likely.
To align Kenya’s insurance sector with international standards and increase competitiveness, the government in 2015 introduced new risk-based capital requirements for businesses.
Capital requirements for general insurers doubled to KSh600m ($5.8m), while minimum limits for life insurers rose from KSh150m ($1.4m) to KSh400m ($3.9m).
While designed to strengthen the local industry, the risk-based framework has placed a strain on a number of smaller operators. Kenya-based private equity investment firm Cytonn Investments has forecast an increase in mergers and acquisitions as a result, and has predicted that some insurers may turn to the markets to raise funds.
In addition, plans are under way to reform the wider financial landscape, with proposals to create a new national body to oversee the insurance industry.
Last April the government approved a bill that, if fully ratified and implemented, would merge four existing financial bodies into the Financial Services Authority. The proposals are designed to streamline bureaucratic processes, improve supervision of financial markets and bolster consumer protection.
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