What were the main trends in the Kenyan insurance market over the last twelve months?
There has been a growing awareness that insurance cannot maintain the status quo with the rapid change of technology. More and more underwriters have recently embraced digital marketing after taking cognizance of the fact that it is the most effective way of serving millennials. A number of insurance companies have therefore developed innovative products to meet the demanding technological shift for the customers. Consequently, digital innovation has taken centre stage and a number of products are now being distributed through mobile apps or on online portals as is the case with the marine insurance cover. We expect this trend to continue shaping the insurance business into the future, and hopefully this will help shade off its predominantly conservative image as it embraces change.
Were there any regulatory frameworks that were introduced that will affect the industry in 2018?
The introduction of the risk based capital adequacy supervision by the insurance regulator, as opposed to the traditional margin of solvency will continue to have an impact on the insurance landscape. Different insurers can now hold different levels of capital depending on their profiles. There have been shifts in the market with mergers and realignments as this comes on the backdrop of the requirement to clearly separate long term business and general business.
The implementation of IFRS9 requires insurance companies to make full provisions of receivables therefore affecting the bottom line (profitability) of the companies. This calls for insurance companies to review their credit policy in order to comply with this regulation. The development will directly affect business partnership with insurance brokers and agents. Over the years, insurance has been on a “cash and carry” basis, but this will dissolve the little credit windows that were still available to brokers and agents. When you weigh this against the fact that premiums are generally high and most customers want to pay in instalments, it calls for tough decisions and a delicate balancing act for brokers and agents.
The Statute Law (Miscellaneous Amendments) Act 2017 empowered the industry’s regulator (Insurance Regulatory Authority) to regulate bancassurance business done by banks in the same manner as the ordinary insurance business. Of great significance is the requirement by the regulator (as part of its mandate to educate the general public) that bancassurance agents must demonstrate they have given customers the right to independently choose an underwriter from a list that is licensed by the authority. Failure to demonstrate this could result in the bank having to pay a fine of Kshs.5million. All publicity materials therefore (whether online or not) must then comply with this requirement which is an additional check for the bancassurance agents going forward.
The capping of Interest rates introduced in the banking sector in 2016 has and will continue to have a spiral effect on the insurance industry beyond 2018. The consequent slow down in lending by banks has affected investment in projects and assets that are insurable. Insurance companies benefit from the lending activities of the banks and a key area that has been affected is asset financing which has experienced a slow down.
What is your take on the insurance industry performance in 2017 and what do you project in 2018?
In 2016, Kenya was ranked as one of Africa’s most mature insurance markets, with growth forecast at 6% a year, according to EY. While this is slower than some other large African markets, annual premium income was still expected to increase significantly, from $1.8bn in 2014 to $2.2bn by 2018, driven by urbanization and a strong economy. Though the potential for growth is strong, the market has encountered some problems that are common among insurance sectors in the emerging world.
The sector saw lackluster performance in 2015, 2016 and 2017, which was a result of slow growth amid issues with fraudulent claims, particularly in the medical and motor segments. In 2017 particularly, the prevailing political environment regarding elections affected growth in the sector as a wait and see mode was set for local and foreign investors. Insurers also struggled to expand coverage among a large informal economy and income-sensitive population. The upside of this of course was the increased uptake of the political risk insurance cover (commonly known as PVT) as businesses sought to take a precaution and cushion themselves on the possibility of assets suffering damage during the electioneering period.
However in 2018, with a wide array of innovative local insurance market leaders, the Kenyan insurance landscape has the potential for a sizable expansion of domestic market penetration. The country also presents a solid base for reaching other African markets, which bodes well for drawing further interest from investors. Kenya plays a key role in the African Insurance Organization (AIO) and the interaction should spur growth in the lager East African market and beyond.
With more focus on customer service as a key growth factor, 2018 should give a better outcome. Most insurance companies have in the last one or two years realized they need to have more focus on the different selling channels and so most companies now have a bancassurance department for example. This should lead to a more focused tailor made approach to innovation of products and subsequent distribution.
A number of high-profile companies had cyber breaches last year. What does HFIA have in place for this (cyber insurance) or what are the plans for such an almost grey area?
Cybercrime is a new and emerging risk in the global market mainly targeting IT firms and the financial services sector. HFIA has partnered with AIG Insurance to provide a tailor made cyber insurance solution for the customers based on the nature of their business.
How likely are you to achieve your forecasts for 2018 considering the changes that have happened to date in the market?
The economy is expected to grow at an average rate of 6% and we expect this to spur growth in all the sectors including insurance. We also expect the growth will spur new investments that will result in new insurance business opportunies. We have also put in place an extensive retention strategy for our existing business and consequently, we expect to retain at least 80% of our existing business. Because of the efficiency of the service we offer, we have already seen a trend of business referrals from extremely satisfied customers and this will continue to spur growth for HFIA. We have a professional and experienced team on board that keeps up with market trends and is customer focused.
Which other classes of insurance (besides agriculture) offer prospects for growth this year?
Marine insurance is still an area not yet fully exploited and we expect to grow in it. Full implementation of Insurance Act Section 20 on marine insurance business stipulating that “‘no insurer, broker, agent or other person shall directly or indirectly place any Kenya business other than reinsurance business with an insurer not registered under the Act without the prior approval” means all marine insurance covers must be taken within the country. Marine insurance uptake is therefore expected to grow in 2018.
Analysts say that innovation within the insurance industry has been slow. What is your take on this and what is HFIA doing about it?
The insurance industry has been traditionally very conservative, although this is changing. Products have more or less been similar across companies, with little variations here and there. But there is a growing realization of the need for tailor made products instead of the mass ‘one size fits all’ concept.
However, HFIA is partnering with key underwriters on certain products on a need basis for our customers, and so we have been able to get extremely good offerings at premium rates giving our customers good pricing without compromising on quality.
Last year you launched AfyaMed targeting the older citizens. What do you have in the pipeline for this year?
HFIA is slowly shifting from dependency on short term insurance covers to long term insurance to sustain its revenue base. Towards the end of 2017, we launched two long-term individual life covers – career life and fanaka savings plan- through the referral model across the bank’s branches. The said long-term polices will result in a longer relationship with our customers, giving greater opportunity for cross sell and expanding the agency’s portfolio.