Despite strong premium growth and technological advancements, insurance penetration in Kenya remains low, stuck at 2.4% in the first half of 2024. A report by Cytonn Investments highlights that this rate is far below the global average of 7%, reflecting deep-rooted structural challenges in the country’s insurance sector.
According to data from the Insurance Regulatory Authority (IRA) and the Kenya National Bureau of Statistics (KNBS), the 2.4% penetration is a minor increase from 2.3% in 2022, indicating sluggish progress. The Cytonn report attributes this low uptake to entrenched perceptions that insurance is a luxury or is only necessary when mandated by law. “Insurance uptake in Kenya remains low compared to other key economies,” the report notes, citing a lack of awareness and understanding among the public as a major barrier.
While penetration remains a challenge, the sector has seen some positive developments. Gross premiums grew by 16.7% to KES 361.4 billion in 2023, up from Kshs 309.8 billion in 2022. The general insurance segment contributed 52.9% of this premium income, with long-term insurance accounting for 47.1%. Motor and medical insurance, key categories in general insurance, made up 63.5% of the gross premium income—slightly lower than their 64.4% share in 2022.
Cytonn’s report points out that growth in premiums has been driven by an improved business environment and increasing demand for health and motor insurance. However, the growth is uneven, with challenges such as fraud, insolvency, and consumer mistrust weighing heavily on the sector.
One bright spot in the industry has been the growing adoption of technology. Insurers are increasingly turning to digital platforms to expand their reach, a shift that was accelerated by the COVID-19 pandemic. Mobile technology, in particular, has become a powerful tool for widening access to insurance products, especially in rural areas.
In a key innovation for 2024, CIC Group launched Easy Bima, a digital motor insurance product that allows customers to pay their premiums in monthly installments. This initiative is designed to make insurance more affordable and accessible to those who may struggle with upfront costs. “Technological advancements and innovation are being leveraged to increase convenience and affordability,” the report states. Insurers are also making use of mobile platforms for premium collection, further simplifying the customer experience.
However, the report highlights a series of challenges that continue to stifle growth. One of the major issues is insurance fraud, which has been on the rise, particularly in the medical and motor insurance segments. The report points to an increase in fraudulent claims as a significant factor pushing up costs. “Fraudulent claims account for a significant proportion of total claims, driving up costs for insurers,” it says. In 2023, the IRA reported 56 cases of fraud, with fraudulent motor accident injury claims making up 21.4% of the total.
Insolvency is another critical issue facing the sector. Several insurers, including Xplico Insurance, Invesco Assurance, and Resolution Insurance, have been placed under statutory management or provisional liquidation due to prolonged financial difficulties. These insolvencies have shaken customer confidence and eroded the public’s trust in the insurance sector. “The recent insolvencies of key players underscore the need for better governance and risk management within the sector,” the report warns.
Compounding these problems is the fierce competition within the market. Kenya’s insurance sector is served by 57 providers, many offering similar products. This has led to intense competition and, in some cases, unsustainable practices like premium undercutting, where companies offer implausibly low premiums to attract clients. This practice has significantly contributed to underwriting losses across the sector. Despite regulatory efforts to curb this behavior, pricing remains a contentious issue that continues to affect profitability.
On the regulatory front, the sector is undergoing significant changes. The adoption of the International Financial Reporting Standard (IFRS) 17 has placed new demands on insurers, requiring them to provide more detailed disclosures of their financial performance. While this is expected to improve transparency, smaller insurers have struggled with the costs of compliance. Additionally, Kenya’s transition to risk-based supervision has pushed insurers to maintain a capital adequacy ratio of at least 200%. This has led to a wave of capital raising and consolidation in the industry, with smaller firms either merging or increasing their capital to meet the new requirements.
“Smaller firms that cannot meet the capital requirements are likely to seek mergers or exit the market altogether,” the report notes. This trend is expected to continue as the regulatory environment tightens.
Despite these challenges, the Cytonn report presents a cautiously optimistic outlook for the insurance sector. As inflationary pressures ease and the Kenyan Shilling stabilizes, there is potential for an increase in disposable income, which could support higher insurance uptake. Companies like Britam are already exploring opportunities for regional diversification, with plans to expand into markets like the Democratic Republic of Congo (DRC). According to the report, “Regional diversification offers insurers growth opportunities and helps reduce exposure to local market risks.”
Raising awareness about insurance products is another key area where the sector can make gains. A 2021 survey by the Association of Kenya Insurers (AKI) found that 27% of respondents cited a lack of knowledge about insurance products as a reason for low uptake. By investing in educational campaigns and simplifying their offerings, insurers have the potential to significantly expand their customer base.
“There is still significant untapped potential in the market, but overcoming the challenges will require concerted effort from all stakeholders,” the Cytonn report says.
