SLOW UPTAKE

Low penetration drives insurers to seek alternative revenue sources- report

Insurers increased their assets under management and investments in property to balance their already dwindling earnings

In Summary

•While demand for some insurance products such as motor insurance has been on the rise, both general and life business segments have seen a decline

•This has seen increasing price wars among Kenya’s 53 insurers as they struggle to retain existing market share and gain new clients.

Slow growth in the insurance industry is forcing underwriters to grow investment income to boost revenue.

Cytonn Investments’ H1’2019 Insurance Report shows insurers increased their assets under management and investments in property to balance their already dwindling earnings.

The country’s insurance uptake has been on a downward trend dropping to 2.4 per cent of GDP in 2018 compared to 2.71 per cent in 2017. In 2016, insurance penetration was reported at 2.75 per cent.

 

“Most insurance companies are now moving into asset management to boost their group revenues,” Cytonn’s investment analyst David Ngugi said yesterday.

While demand for some insurance products such as motor insurance has been on the rise, both general and life business segments have seen a decline.

This, according to the report, has been a result of increasing price wars among Kenya’s 53 insurers as they struggle to retain existing market share and gain new clients.

“The price wars are a result of low penetration rate in the country which has led to players in the market undercutting product pricing in order to gain market share,” the report stated.

Ngugi said pricing insurance policies at lower rates increases the risk bore by underwriters, dampening gains in the industry.

This, coupled with increased fraudulent claims has hurt firms’ profitability, translating into high premium rates and huge claim reserve ratios.

“While the sector remains attractive with vast potential, we have witnessed the insurance sector grappling with low penetration, increased cases of fraudulent claims and the required increase in capital following adoption of a risk-based capital adequacy framework,” Cytonn’s Head of Private Equity Shiv Arora said.

 

During the first half of the year, gross premiums grew 4.4 per cent to Sh117.28 billion compared to Sh112.39 billion the same period last year.

Long term insurance grew at a faster pace of 6.9 per cent compared to general insurance business, which grew by 2.9 per cent during the review period.

However, general insurance business remained the largest contributor to the industry contributing 62.3 per cent of the total premiums collected.

Of this, motor insurance and medical insurance classes accounted for 66.8 per cent of the gross premium income under the general insurance business.

“In the long term insurance segment, pensions and life assurance classes were the biggest contributors to the life gross premium income, accounting for 66.5 per cent in H1’2019, compared to the 66.4 per cent contribution by the two classes recorded in H1’2018,” the report stated.