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Catalyzing Insurance Penetration for Economic Growth in East Africa

  Oct 16, 2020

Insurers in the East African region have experienced better times than their financial performance in recent years. The sustained economic growth in the region has not translated into a positive trajectory for insurers.

According to the Insurance Regulatory Authority (IRA), Kenya’s Insurance penetration, which is the ratio of gross direct insurance premiums to Gross Domestic Product (GDP), declined to 2.4% in 2018 (2017: 2.7%). Tanzania’s insurance penetration rate is among the lowest in Africa, at 0.5% in December 2019 according to GCR Rating while Uganda is less than 1% (IRA UG). The world average insurance penetration stood at 6.1% in 2018/19. The low penetration of insurance regarding the GDP means that over 97% of the GDP in East Africa is not insured.

Strathmore University Business School held the first industry roundtable session which brought together top insurance industry players in the East Africa Region. The industry Roundtable provides a platform where top industry leaders can have conversations on how to increase growth and tackle the key issues arising in their specific industries.

Speaking during the first session of the Industry Roundtable, Dr. Julius Kipng’etich, Group CEO Jubillee Insurance said,” There is a need to create a risk management culture among the public and more so to educate the public on the benefits of insurance uptake”. He further highlighted some of the key issues facing the insurance industry in the region as increased fraudsters and lack of adequate capacity building on benefits of insurance uptake.

In Kenya, the increased fraud in the insurance sector led to the formation of the Insurance Fraud Investigation Unit (FIU). In 2018, the total amount recorded to have been lost through fraud is 310,485,140. The fraud was more dominant in the motor industry, followed by agents and insurance companies with life assurance having the least cases. Mr. Godfrey Kiptum CEO of the Insurance Regulatory Authority (IRA) noted that real-time data will play a very big role in curbing fraud in the insurance sector.

Speaking on what IRA is doing to increase insurance uptake in Kenya, he said, “IRA has three key mandates; creating regulations for the sector, supervision of players in the sector, and promoting development in the insurance sector. The most recent initiative by the IRA to promote development in the insurance sector is the creation of the microinsurance business. “The Microfinance business will allow for the registration of small insurance companies that can have a quick turn around and have a different distribution strategy and manage their claims in a better manner,” he added.

Mr. Ronald Zake, Chair, Governing Council, Insurance Institute of Uganda, shed light on the situation in the insurance industry in Uganda. He spoke about three key areas that are stimulating the industry’s growth. “In Uganda, there are some areas that are stimulating insurance growth are bancassurance, agricultural insurance, and micro-insurance,” Mr. Ronald Zake.

Tom Gicuhi, Executive Director/CEO Association of Kenya Insurers gave a rundown of the four main operational factors that affect the growth of insurance in Africa.

  1. Demographics. More than half of the population is under 18 years which means they cannot be covered. Of the other half, 40% live below the poverty line, and only three million Kenyans are in wage employment. That leaves the 15 million Kenyans in the informal sector uncovered
  2. Affordability. The larger portion of the adult population in the region cannot afford to buy insurance.
  3. Consumer Education. A good number of the population are not aware of the benefits of insurance.
  4. Fraud is a major challenge.

Tom emphasized the need to restructure the sector for enhanced growth. “Our insurance industry structure promotes unhealthy competition in the market, thus a lot of predatory pricing,” Tom said.

Insurance is a very important and necessary, more so in today’s fast-paced world. The industry needs to craft products that cater to the current needs of the diverse population. On top of that, the sector players must work together to identify ways in which they can stimulate the inclusive growth of the industry.

The second session of the Industry Roundtable will be held on 30th November 2020. The topic for this session is Financial Sector Development for Economic Growth in Africa: Future of Financial Service Post COVID-19 in Africa: Harnessing emerging opportunities

Register here.

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