Kenya
About the country
Insurance activities in Kenya are profitable, operating in one of Africa’s better developed and regulated insurance markets. The sector has grown and become competitive in recent years: there has been some innovation in the microinsurance space, but other sectors remain largely under-developed. At present, 6.0% of the Kenyan population is covered by microinsurance, slightly above the African region’s average. Microinsurance growth rates in recent years figured 5% annually. Kenya receives a significant amount of microinsurance aid, receiving 24% of total grants committed worldwide. In particular health microinsurance was found by some researchers to have potential for the Kenyan market.
Our engagement
The ILO’s Impact Insurance Facility has actively participated in the development of the insurance market in Kenya. Since the start of the Facility in 2008, it has been involved in several projects for regulated insurance companies, offering capacity building packages to improve value. Ongoing projects are taking place with (bundled) agriculture insurance programs, livestock insurance schemes as well as financial services providers. The Facility has documented the risk management strategies of Kenyans through financial diaries. More recently, the Facility has also invested in a more sustainable local training infrastructure, in partnership with one of Kenya’s leading training institutes.
Our initiatives: Capacity building
The capacity building activities in Kenya aim to translate knowledge into practical solutions as a way to develop the skills of Kenyan providers, distributors and other key players. The Facility invests in a sustainable local training infrastructure: in partnership with the College of Insurance, Nairobi, we offer courses from our training portfolio. Upon completion of a number courses, local trainers become a certified trainer, which entitles them to further build the capacity of the Kenyan insurance industry.
Our initiatives: Research and innovation
The Facility partners with a number of leading practitioners in Kenya to design innovative strategies. We support them in implementing game-changing solutions, in addition to evaluating successful schemes in Kenya.
With Britam, the Facility has started a project to assess its existing microinsurance product range using the PACE tool. The goal is to evaluate the value of Britam’s products and related processes across four dimensions: product, access, cost and experience.
For the Equity Insurance Agency, the Facility will also provide support in forming an overall strategy and working through a change management process to better equip it to serve the low-income market with valuable insurance products in the future.
The Facility supports APA Insurance in conducting market research. APA’s product pricing is in the process with the support from Risk Shield consultants based on the weather, yield and price data collected so far for pilot areas. The savings platform is under development with a product pilot to be launched soon.
Kilimo Salama, the largest agricultural insurance program in Kenya is in the process of making its business model more sustainable and bundling index insurance with other financial services.
The International Livestock Research Institute (ILRI) works at the crossroads of livestock and poverty. They have conducted research of remote sensing tools, effective partnerships between commercial players and research institutes, and the role of consumer education.
CIC Insurance Group – the largest insurance company in Kenya - is determining the success factors in stimulating regular savings and the cost-effective elements of a marketing strategy and exploring the success factors for a retail distribution model.
Lessons
Health
Households indicate a preference for health insurance policies with rebates and no deductibles. Respondents to a survey in Kenya indicated a strong preference for health insurance policies with now deductibles, even though the policies have a higher premium. The lack of a no-claim bonus had a strong negative impact on customers’ satisfaction with the product.
Health microinsurance reduces borrowing and increases consumption. A randomized controlled experiment in rural Kenya found that health microinsurance reduced health expenditures, reduced informal borrowing for medical costs, and increased overall and non-food consumption.
Clients may value hospital cash less in mature markets like Kenya. In many contexts, hospital cash is a simple and attractive benefit. It allows clients to better handle the costs of health care, travel and loss of wages. However, experiences in Kenya have shown that it may be an unnecessary addition in more developed markets where more comprehensive products are on offer.
Technology
Technology can support the different functions of microinsurance and its service. The experience of one of our project partners demonstrates how technology can be used to streamline end-to-end service delivery.
Data analytics can be used to improve claims experience. Data-driven analytics, if done on a timely basis, can quickly uncover patterns in claims management to enhance client value in insurance products.
Timely claims processing is crucial for client satisfaction and value, but insurers often struggle to get it right. One of the Facility’s project partners in Kenya showed the importance of storing and managing data in a way that makes such analysis easier and quicker in the future.
Agriculture and index insurance
Openly communicating problems and seeking communities’ assistance can help build trust, even when things don’t go as planned. Our project partners realised that distribution costs related to selling an index-based livestock product to pastoralists in Kenya's remote Marsabit District had exceeded the estimates. These additional costs prevented the partners from implementing the next round of sales, and despite best efforts, this opportunity was skipped.
Insurance allows households to cope better with shocks. New evidence from Kenya shows that index insurance helps households avoid burdensome coping strategies, such as selling productive assets and reducing consumption, which can have a long-term adverse effect on well-being.
Consumer education and client insights
Limited trust, not lack of education or product knowledge, appears as the key barrier to take-up of health insurance. This was one of the findings in a randomized field experiment indicating priorities for insurers, regulators and donors interested in increasing product take-up.
Radio proves to be a cost-effective channel to raise awareness and increase knowledge about insurance. The radio campaign methods however have limited impact on two other dimensions, i.e. attitudes and trust. Increased knowledge in itself appears not enough to change behaviour.
Households underestimate impacts of shocks that are not in the form of new cash outlays. Households in Kenya think about losses in terms of cash outflows. They generally have a good understanding of the direct costs of risks, however they underestimate the impact of risks which do not result in direct cash outflows, but rather in lost income or assets.
Market development
Beware of exclusive distribution agreements. Cases on the ground have shown that exclusivity agreements with distribution partners warrant carefulness, especially when problems with infrastructure and sales are encountered.
Competition leads insurers to improve benefits and servicing. A study on the profitability of microinsurance schemes has shown that insurers have tried to foster customer loyalty, differentiate products, improve servicing, and reduce costs rather than only compete on price by reducing premiums.
While bundling insurance with saving is attractive, the key challenge is to sustain saving. An analysis on savings-linked product shows some configurations which, when at scale, become attractive to customers.
Less is more when promoting a new service. The experience of M-PESA is a well-documented case, as its service has evolved together with is marketing approach.
