Micro-insurance in Kenya

Fiona Rasanga -

I bet most of you have either heard or said to yourself the term “Insurance is a Scam”. But is it though?

The basic idea around insurance practice is that a group of people pool their resources (premium) to guarantee that in case one of them faces loss, they will be compensated for that loss. The premium to be paid is dependent on the level of risk associated with a loss and the cost of said loss. For instance, the premium paid by an individual who owns a Porsche is significantly different from that paid by one who owns a Probox.

For a practice as old as insurance, why is it still considered a preserve of the well-to-do? A study by FinAcess revealed that only 7% of the Kenyan population have any form of insurance with most of the insured drawn from the formal sector which accounts for about 5% of the total population. This, therefore, means that the majority of people in the informal sector are not adequately provided for by conventional insurance products. This, therefore, means that it’s necessary to define a different concept of insurance that taps into the potential existing in the informal sector; enter micro-insurance. Micro-insurance is defined as the delivery of insurance products with low premiums and low coverage options. The critical features of a micro-insurance product are; transactions are low-cost (and reflect members’ willingness to pay) and clients are essentially low-net-worth (but not necessarily uniformly poor).

Low-income households are generally more vulnerable to unexpected risks such as drought/famine, accidents, illnesses, unemployment, and natural disasters which keep them in the vicious cycle of poverty. These perils have devastating effects on livelihoods especially in situations where there is no buffer to help people mitigate the financial impact of these events. Micro-insurance products are designed for easy access by the low-income populations and have the following delivery models:

  • Partner agent model: A partnership is formed between the micro-insurance scheme (eg. MFI Institution) and an agent (insurance companies), and in some cases a third-party healthcare provider. The micro-insurance scheme is responsible for the delivery and marketing of products to the clients, while the agent retains all responsibility for design and development. In this model, micro-insurance schemes benefit from limited risk, but are also disadvantaged in their limited control.
  • Full service model: The micro-insurance scheme is in charge of everything; both the design and delivery of products to the clients, working with external healthcare providers to provide the services. This model has the advantage of offering micro-insurance schemes full control, yet the disadvantage of higher risks.
  • Provider-driven model: The healthcare provider is the micro-insurance scheme, and similar to the full-service model, is responsible for all operations, delivery, design, and service. There is an advantage once more in the amount of control retained, yet disadvantage in the limitations on products and services.
  • Community-based/mutual model: The policyholders or clients are in charge, managing and owning the operations, and working with external healthcare providers to offer services. This model is advantageous for its ability to design and market products more easily and effectively, yet is disadvantaged by its small size and scope of operations.

Where is Kenya in the Micro-insurance journey?

The insurance penetration in Kenya is currently very low and is currently at 2.8% as a proportion of the GDP (Gross Domestic Product). The reasons for low-insurance penetration range from:

  1. Lack of trust in insurance companies – this is characterised by non-payment of claims or lengthy and tiresome processes before a claim is paid.
  2. Low engagement and low awareness of insurance companies – the informal market is largely oblivious of insurance and regards the same as a preserve of the rich.
  3. Low understanding and lack of relevant insurance products – most of the
    information in the market is incomplete and of little value in helping the customer to make valuable risk management decisions. There is also a pronounced lack of appropriate products for the low-income market.
  4. Some cultural and religious beliefs discourage people from taking insurance covers.
  5. The government has not adequately supported insurance uptake by
    allowing tax exemptions and providing supporting fiscal measures

With a large proportion of our population being informal-sector workers there is a huge market for micro-insurance products that are adequately priced and easily accessible. As such, there have been many initiatives by the government, insurance companies and private organisations to increase the access to micro-insurance products.

What has the Government Done?

Insurance in Kenya is regulated by the Insurance Regulatory Authority whose mandate is to oversee the insurance practice and ensure actors engage in fair practice.

In a bid to encourage more investments in micro-insurance, the Insurance Regulatory Authority issued a set of standalone micro insurance regulations with less stringent capital, product design and reserving requirements. The Micro-insurance Regulations, 2018 apply to; a registered micro-insurer, a registered insurer when undertaking micro-insurance business and micro-insurance intermediaries.

Notable in the regulations is the provision of prospective risk carriers to register solely for a micro-insurance license with the requirement for a minimum paid up capital of Kenya Shillings 50 million. We expect to see a number of players and individuals apply for the micro-insurance licence which has less stringent capital requirements as compared to the capital requirements of fully-fledged life and general insurance companies which currently stands at Kenya shillings 300 million and 600 million respectively.

The regulation also specifies the criteria to be satisfied by a micro insurance contract;

  • The policies shall offer protection to the individual or members of a group and their property and shall exclude third party liability risks.
  • The policies shall have a contract term of up to but not exceeding 12 months
  • The policies shall be renewable at the end of the contact term without the need for a new policy document subject to payment of premium
  • The amount of daily premiums or contributions shall not exceed Kenya shillings forty – This translates to a maximum annual premium of Kenya shillings fourteen thousand six hundred.
  • The sum insured shall not be more than Kenya shillings five hundred thousand.
  • Be a fixed sum insurance contract
  • Not provide for the premium to increase during the term of the contract
  • Provide that cover under the contract does not commence until; the premium has been paid or where the contract provides for payment of the premium in instalments, the first instalment has been paid

What have Insurance Companies and Private Institutions done?

With the increase in mobile phone and internet penetration insurance companies in conjunction with private organisations have created digitally accessible products. Some of these products include:

a) Imarisha Jamii by BlueWave MicroFinance

  • This product is underwritten by Jubilee Insurance
  • Accessed via USSD *643#
  • Bundled up product – Provides cover for life,Personal Accident, hospital cash and disability
  • Funeral cover and disability benefits up to 100,000/=
  • Hospital cash benefits of up to 10,000/= when a beneficiary is admitted for 3 nights or more
  • Premiums are as low as 20/= per week and 150/= per month
  • Cover also has Group, Family and Chama options

b) Afya Poa by Insurance for All Insurance Agency

  • Underwritten by Sanlam Insurance
  • Accessed via USSD *699*90#
  • Bundled up product – Provides Health, Accident, Property, Life & Pension Covers
  • Payments automatically deducted from mobile phone credit
  • Emergency loans available to members upon exceeding their medical limits
  • Afya Poa 1 - Premiums from 6,750/= per year, IP limit – 100,000/=, Maternity – 25,000/=, Dental – 5,000/=, Funeral – 25,000/=
  • Afya Poa 2 - Premiums from 10,500/= per year, IP limit – 200,000/=, Maternity – 50,000/=, Dental – 20,000/=, Funeral – 50,000/=

c) Riziki Cover by Equitel

  • Underwritten by Britam
  • Covers loss of income due to hospitalisation for three or more nights (pure hospital cash product).
  • Accessed via USSD *745#

Challenges in rolling out Micro-Insurance Products

Despite various industry players rolling out different products, the insurance penetration rate still remains below 3% year-on-year, why is that?

Some of the challenges faced when rolling out products include:

  • This segment of the market prefers liquidity and are thus hesitant to commit funds for needs that aren’t immediate.
  • Insurance companies incur high operational costs due high costs of customer acquisition policy initiation, servicing and claims settlement thereby affecting profitability of these products.
  • These products have complex claim processes making them unattractive to the consumers.
  • General negative perception of insurance companies
  • Lack of data to adequately price insurance products.

Future Outlook

A review of micro-insurance products currently in the market and those that had to be recalled from the market after launch revealed the following desirable attributes of a micro-insurance product that would increase chances of a successful product launch;

1. Have flexible payment options that match the income patterns of the target market who are mostly on daily wages.

2. Roll out bundled up products (health insurance, personal accident, life insurance). This generally increase the perceived value of the products.

3. Have a variety of coverage options and consequently premium options to allow individuals choose an option that best suits their needs and ability to pay.

4. Inpatient only covers for health micro-insurance. This significantly helps companies reduce the expected cost of claims and admin costs. This can be passed down to customers in the form of a cheaper premium. Excluding outpatient coverage also helps reduce cases of moral hazard that generally leads to high outpatient claims.

5. Design and sell products to existing organised groups as opposed to retail business – Group products are cheaper to administer and the cost of acquisition per customer is greatly reduced.