Kenyan insurance companies expand into untapped markets

A young population with rapidly rising purchasing power forms a solid base from which the Kenyan insurance market can grow. While penetration remains relatively low, it is in line with most countries in the region and creates a welcoming, innovative environment for industry players. 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 urbanisation and a strong economy. “As a greater percentage of the population moves to urban areas and gains affluence, insurance purchases to cover health care and items such as cars are more likely,” said Rohan Sachdev, global insurance emerging markets leader at EY, in a report published by EY in 2016 titled “Waves of Change: Revisited Insurance Opportunities in sub-Saharan Africa”.

Though the potential for growth is strong, the market has encountered some problems common to insurance sectors in the emerging world. The sector saw lacklustre performance in 2015 and 2016, which was the result of slow growth amid issues with fraudulent claims, particularly in the medical and motor segments. Insurers are also struggling to expand coverage among a large informal economy and income-sensitive population. “The perception of the insurance sector is that it is the growth market of the future, but when you look at the volumes the numbers are not there,” Vijay Srivastava, CEO and principal officer of insurance provider GA Insurance, told OBG. “Penetration rates largely depend on the overall wealth of the economy, and right now insurance remains a secondary or tertiary need for households.”

Sector Indicators

Insurance penetration, defined as the ratio of premiums written to GDP, remains roughly in line with continental markets, at 2.8% in 2015 – the same as in 2014, and down from the 2013 figure of 3.4% after the GDP was restated. Insurance density, the amount of premium written compared to total population, performed better, rising to KSh3774 ($36.82) in 2015 from KSh3420 ($33.4) in 2014. Estimated insurance cover also rose, with outreach for life policies thought to be growing faster. The Association of Kenya Insurers (AKI) reported market penetration of 1.8% for non-life and 0.8% for life. Particularly in light of slowdowns impacting other major markets on the continent, the sector’s performance has been strong, although it has lagged behind the global average. In the year to December 2016, the insurance sector grew by 12.3%, largely spurred by expansion in the life sector.


Written premiums across the industry in 2016 totalled KSh194.73bn ($1.9bn), up from KSh174.46bn ($1.7bn) in 2015. General insurance accounted for 62.5% of the total, at KSh121.67bn ($1.2bn), while life accounted for the remaining 37.5%, at KSh73.06bn ($712.8m). According to the Insurance Regulatory Authority (IRA), written premiums in the life sector grew by 19.3% in 2016, compared to 8.5% in the non-life segment. The 8.5% increase in general insurance indicated a slight slowdown when compared to the 10.6% growth recorded in 2015, though life premiums increased by 19.3% – significantly higher than the 8.5% growth recorded in 2015.

Premiums reported under micro-insurance were KSh2bn ($19.5m) – 5.1% of all general insurance premiums – in 2015, the last year for which figures are available. Britam wrote the biggest volume of micro-insurance that year, at KSh523.9m ($5.1m) and a loss ratio of 85.2%; followed by CIC, at KSh322.6m ($3.1m) and a loss ratio of 118.6%, according to the AKI. The sector has also been facing increased overhead costs, which have put pressures on margins. Management expenses across the industry climbed 19.9% in 2015 and 6.8% in 2016, to KSh38.13bn ($372m), while before-tax profits in the general segment have fallen significantly in recent years – by 20.5% in 2015 and 25.5% in 2016. Before-tax profits in the life segment, however, recovered dramatically in 2016, rising 408.3%, after a 70.46% loss in 2015.

Margins were also affected by more volatile capital markets, which affected investment income. Market capitalisation closed at KSh1.97trn ($19.2bn) in the fourth quarter of 2016, down 3.9% from KSh2.05trn ($20bn) in the fourth quarter of 2015. Approximately 86.1% of insurance assets were held in income-generating assets, including government securities (49.9% of total investments), property (16.8%), term deposits (10.9%) and ordinary shares (8.5%). However, the sector’s assets overall saw a steady increase year-on-year (y-o-y). The IRA reported the industry’s combined asset base had reached KSh525.25bn ($5.1bn) in December 2016, up 10.1% from KSh477.2bn ($4.7bn) in December 2015. Shareholders’ equity climbed 9.5% over the calendar year to December 2016.

Long Term And Life

Kenya’s long-term insurance business includes bonds, life cover and pensions. As in many markets, the long-term segment lags behind that of the general insurance sector; in Kenya, general insurance premiums were 66% higher than life premiums in 2016. Insurers must keep separate accounts for each class of life insurance and each class of general insurance they underwrite. Within the long-term and life segments, life – offered by 26 companies – comprised the bulk of gross premiums, totalling KSh62.1bn ($605.9m) in 2015, the last year for which statistics are available, up 9.7% from KSh56.6bn ($552.2m) in 2014. A total of 107,591 policies were written in 2015, down from 152,331 in 2014, and 4.39m lives were covered by year-end. Insurance cover, measured by insured lives to total population, improved to 9.1%.

Total pension funds held by insurance companies increased by 12.1% to KSh116.1bn ($1.1bn) in 2015, with a 7.9% average net rate of return. Management expenses climbed faster, rising by 14.2% to KSh11.3bn ($110.3m) and net commissions up 23.4% to KSh5.2bn ($50.7m). Claims on life and long-term lines increased considerably in 2016 compared to 2015. Claims and benefits were KSh32.6bn ($318.1m), up 36.9% on KSh23.8bn ($232.2m) in 2014.


As is the case in most African economies, Kenya’s general insurance remains far larger, driven in part by mandatory lines. Premiums for general insurance grew 8.5% in the year to December 2016, down from 10.6% in 2015. By year-end there were 1.8m policies, down 33% from the 2.6m in force at the end of 2015. The IRA says the drop in policy numbers may stem from increased bundling of different insurance products under one policy. Net earned premiums were 70.8% of the gross premium, totalling KSh86.14bn ($840.5m) – up 8.2% from 2015 – while claims rose 9.3% y-o-y to Ksh53.7bn ($524m) at year-end 2016. The average industry loss ratio was 62.3% – higher than 61.5% in 2015, but in line with global benchmarks.

Motor insurance dominates the general insurance sector as it is mandatory for drivers to have third-party insurance. However, while it is widespread, it is often not profitable for insurers. Underwriting loss on general insurance during 2016 was KSh390.83m ($3.8m), including KSh3.73bn ($36.4m) loss on private motor insurance. Among the most profitable segments were commercial motor, which contributed KSh454.5m ($4.4m), including KSh1.41bn ($13.8m) in profits from public service vehicle insurance), theft insurance (KSh254.29m [$2.5m]), and liability insurance (KSh201.77m [$2m]).

Sector Structure

The country has a large and competitive insurance sector, although it has gone through a steady process of consolidation – something that is expected to continue, in part due to rising capital requirements and potential mergers with foreign firms looking to gain a foothold in the region. At the time of writing there were 49 insurers (down from 51 in 2015), five reinsurance companies, 139 licensed insurance brokers, 22 medical insurance providers and 6424 insurance agents, while 11 firms were involved in micro-insurance.

The largest general insurance provider is Jubilee Insurance, with a market share of 11.8%. Jubilee also holds the second spot in terms of life insurance, with 14.1% of that market. At year-end 2016 the firm announced growth in after-tax profits of KSh3.68bn ($35.9m), up 18% y-o-y. It also reported that gross revenue was up 14%, to KSh24.7bn ($241m). Some of this growth was driven by bancassurance and new licences to offer medical and life cover in the Democratic Republic of Congo, according to an announcement made by the company in August 2016.

Britam, a diversified financial services group with a presence in Uganda, Rwanda, Tanzania and Mozambique, among others, is the largest life provider, holding 23.51% of that market. The year 2015 was a challenging one for the listed firm, which reported a KSh1.2bn ($11.7m) loss compared to KSh3.2bn ($31.2m) pre-tax profit in 2014. However, this trend was reversed in 2016, with the company announcing a before-tax profit of around KSh4.2bn ($41m) in December of that year. According to a company announcement in August 2016, this was in large part due to the revaluing its long-term insurance business in line with new regulatory requirements.

Mergers & Acquisitions

In 2015 Fitch Ratings highlighted the attraction of Kenyan insurers as prime targets for acquisitions, offering foreign investors a platform to reach the fast-growing regional market. “The attractiveness of Kenyan insurers has been supported by the market sophistication (despite low penetration rates) and transparency of financial disclosure in Kenya relative to its peers in sub-Saharan Africa,” the agency stated.

Joseph Kamiri, the director of group strategy and marketing at CIC Insurance Group, expects a wave of consolidation. “We are over 43 or 44 companies,” he told OBG. “I see in mergers and acquisitions that number shrinking to around 30 or 25 in the next 10 years. If a company grows, it is taking accounts from another, the market is not growing”. He added that CIC was also looking for a tie-up, but had not yet found a suitable target for this venture. In January 2016 Prudential Financial and private equity fund Leapfrog announced a $350m investment partnership to invest in African life insurers, with Kenya being one of the target markets. Leapfrog already holds a controlling stake in Resolution Health.


Insurance has hitherto been framed by the Insurance Act No. 487 of 1984, which was amended seven times between 2003 and 2014, and covers registration, assets, liabilities, solvency and investments, inspection, rates, claims, assignment, brokers, reinsurance and other aspects. It sets minimum capital requirements, mandates that at least one-third of the ownership must be East African, and blocks any one person from owning more than 25%, except in exceptional circumstances.

However, the sector is on the verge of seeing a significant regulatory shake-up. Following a recommendation from a 2013 presidential task force, cabinet secretary of the National Treasury, Henry Rotich, proposed the creation of a Financial Services Authority (FSA) Bill to Parliament in his FY 2016/17 budget statement. The new FSA will group together the IRA, Retirement Benefits Authority, Capital Markets Authority and the Sacco Societies Regulatory Authority, as a super-regulator to help minimise gaps in regulation and consumer protection, as well as to improve product governance and service delivery. The four financial services regulators already have a memorandum of understanding in place to coordinate their regulatory roles. The regulators are also working to harmonise industry rules and practices with counterparts across East Africa to ensure that the local sector is more regionally relevant. In January 2016 the East African Insurance Supervisors Association’s executive committee passed the Draft Market Conduct Supervision Manual, which was set to be discussed by national regulators.

Capital Requirements

The Insurance Act No. 487 of 1984 was revised in 2015 to introduce risk-based capital. In line with global standards, the IRA is upgrading its risk-based supervision framework to allow for better comparison globally and regionally.

The IRA has set required capital increases for 2018, and has indicated that they can be fulfilled in a number of ways. For general insurers, capital should reach a minimum of KSh600m ($5.9m), up from KSh300m ($2.9m) in 2015; risk-based capital as assessed; or 20% of net-earned premiums of preceding financial year. Capital requirements for life insurers, meanwhile, should reach a minimum of KSh400m ($3.9m), up from KSh150m ($1.5m) in 2015; risk-based capital as assessed; or 5% of liabilities for the current financial year. General reinsurance companies will need the higher of KSh1bn ($9.8m); risk-based capital as assessed; or 20% of net earned premium in the previous year, while life reinsurers have a minimum requirement of KSh500m ($4.9m); risk-based capital as assessed; or 5% of liabilities for the year. The regulator can force companies to boost their capital levels to 20% of net earned premiums from the previous year based on its own assessment of risk at each company, with minimum capital required to be kept as Treasury bonds, Treasury bills or cash deposits.

Many insurers missed a June 2016 deadline to build capital, although the IRA noted there had been some capital restructuring, and investors’ equity funds were KSh140.29bn ($1.4bn) by the end of 2016, up 9.5% y-oy. Amendments to regulations in 2015 set consistent standards for insurers to value their liabilities, and the IRA introduced financial condition reports to enhance implementation of the risk-based supervision model and boost reporting of material risks.

The AKI lobbied for leniency in the timetable for the new capital requirements, and for lowering new capital charges, which require companies to keep 40% of the value of their property holdings and 30% of the value of equity holdings with the regulator. Tom Gichuhi, executive director of the AKI, told local media the biggest insurers and foreign companies would be able to cope, but smaller firms would need to raise more cash from shareholders or sell out.


Fraud continues to be a major challenge for the regulator. According to the IRA, insurance fraud climbed 257% to KSh366m ($3.6m) in 2015, the last year for which statistics are available. The IRA attributed 23% of fraudulent claims to insurance agents, 19% to motor-accident claims and 17% to medical claims. Although only 106 cases were reported to the Insurance Fraud Investigation Unit set up between the IRA and Kenya Police in 2011, the industry estimates that about 20% of motor claims are fraudulent.

The IRA also believes that between 30% and 40% of private medical claims in the country are fraudulent. To help address some of these issues the private sector is taking some initiatives of its own. The AKI, for example, is planning to establish a clearing house called the Integrated Motor Insurance Data System. The new system features an electronic data interchange and electronic tracking. Ezekiel Macharia Mburu, the chief actuary at Kenbright Actuarial and Financial Services, told OBG that there is likely to be considerable traction once the top four companies, which between them control approximately half the market, sign up for the system.


Banks have made great strides in extending financial services to the wider population through the innovative use of technology and adaptations of existing products. Many insurers, however, say their products do not translate well to low-cost models, and that specialised institutions are needed to develop successful products to help the low-income segment and largely rural population cope with the many risks that reinforce poverty.

CIC’s Kamiri told OBG that local consumers tend to want uncomplicated “commoditised products” which fit their lifestyles and that they can buy off-theshelf. “We were trying to repackage urban products for rural set-up, or bring formality into the informal sector,” he told OBG, referring to CIC’s work to create a bancassurance plan with the Co-operative Bank of Kenya. “Our direction now is to find out what exactly these people are looking for.”

Insurance companies are looking at the almost 90% mobile penetration rate, for example, and in some cases – as with Changamka Microhealth, linked to Safaricom’s M-Pesa – phones are being used as a means of product delivery. In 2015 mobile company Airtel Kenya announced a partnership to offer three insurance products at rates from KSh250 ($2.75) a month with partners MicroEnsure for processes and Pan Africa Life Assurance (now owned by Sanlam) to underwrite the product. Stephen Kamanda, CEO of MicroEnsure, told local media it would reach up to 12.6m Kenyans in the informal sector who do not have access to insurance.

This comes on the back of efforts by the Kenyan government to expand participation in public coverage schemes through mobile phones. In 2010 the government-run National Hospital Insurance Fund – which is already obligatory for salaried employees – signed a partnership with mobile operator Safaricom to allow the self-employed and informally employed to pay health insurance premiums using the M-Pesa service.

Demographic Drivers

Demand for personal coverage is set to rise on the back of a rapidly growing middle class, with 44.9% of the population now ranked in the country’s middle-income bracket. Along with rising levels of household prosperity, Kenya’s relatively young median age – roughly 70% of the population are under the age of 35 – will be a driver of growth in the life segment, Mburu told OBG.

According to Mburu, younger Kenyans are likely to become more aware of the benefits of personal insurance, with a shift in cultural awareness of life insurance products, especially as this cohort is more risk-oriented. There is strong potential in the life segment, which currently lags behind other product lines, he noted. “Life insurance is smaller than general in Kenya, which is out of line with global norms, and is suggestive that it will grow,” he told OBG.

As people move to cities, they are less able to rely on the informal protection of the extended family, also supporting a shift to insurance. This is borne out by the numbers: insurance firms said 80.4% of total allocated premiums were underwritten in Nairobi County, the most populous county in the country. “Cultural issues are one of the major obstacles for growing insurance penetration rates,” Abel Munda, managing director of insurance provider Liberty Life Assurance Kenya, told OBG. “However, as Kenya’s urbanisation continues, we expect formalised insurance to grow alongside it.”

Short-Term Drivers

While many are nervous about the August 2017 presidential elections, some insurers are seeing opportunity. “We expect to gain from elections because we expect businesses will get policies for political risk,” Jadiah Mwarania, managing director of Kenya Re, told local media in March 2016. Kenya Re introduced political risk cover after widespread post-election violence in 2007-08, when businesses lost an estimated KSh17bn ($165.9bn).

According to the former IRA director, Sammy Makove, key growth drivers for 2016 include micro-insurance, oil and gas, and alternative distribution channels including growing bancassurance and furthering technology development. Analysts see growth coming from favourable demographics and increasing disposable income that can be used towards life assurance and for compulsory motor cover as more Kenyans are able to afford cars. Construction has become another priority area thanks in part to projects such as Lamu Port and South Sudan-Ethiopia Transport corridor.


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.



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The Report: Kenya 2017

Insurance chapter from The Report: Kenya 2017

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