Key issues facing the insurance sector in Kenya

Competition

The 43 licensed insurance companies compete for a limited market characterized by low penetration. Kenyans' uptake of insurance cover, both at corporate and personal level, remains predominantly in the motor, fire industrial and personal accident (mainly group medical cover) classes. This illustrates a poor attitude towards personal insurance cover in general. Low penetration of insurance in the Kenyan market, relative to other more developed markets is attributable to the following factors:

  • A general lack of a savings culture among Kenyans;
  • Low disposable incomes for the majority of the population, with close to 50% of Kenyans living below the poverty line;
  • Inadequate tax incentives that could encourage the middle classes to purchase life insurance products; and
  • A perceived credibility crisis of the industry in the eyes of the public particularly with regard to settlement of claims.

Legislation

There are several legislative and taxation changes made in recent years that have had an impact on the Kenyan insurance industry. These include increase in the minimum capital requirements for insurers, increase in the solvency margin for long term insurers, introduction of ‘cash and carry’ rules which will require that insurers shall assume risk upon receipt of the premium, relaxation of investment limits for general insurers, introduction of penalties on late settled claims, change in the rules on taxation of long term insurance business and taxation of dividend income earned by a financial institution.


Financial Reporting

The planned move to a finalized IFRS standard for insurance contracts (IFRS Phase II) represents a major overhaul of financial reporting in the industry.

Implementation of IFRS Phase reporting will be demanding. The developments also offer an opportunity to strengthen stakeholder confidence by enabling insurers to convey a single view of their business that more closely reflects the way it is run internally.

Called to account: A survey of 2007 IFRS insurance reports, suggests that many companies will need to provide considerably more risk information and explanation to meet the more exacting analyst expectations that have resulted from market events.

Human Capital

Many insurers are facing mounting skills shortages. Yet, investment in recruitment, training and career development often trails behind other financial sectors. The primary focus can often be short-term demands rather than securing the talent companies need to meet longer term strategic objectives.

Looking ahead, demographic shifts, evolving aspirations and accelerating globalisation are set to transform the shape of the labour market and could make it even harder for insurers to attract and retain good people.

In this competitive labour market, successful companies will need to develop a strategic approach to HR management capable of anticipating and responding to evolving business needs and workforce expectations. They will also need to identify and realise opportunities to differentiate benefits, career development prospects and other key aspects of their employment brand in home and emerging markets.

Mergers & Acquisitions

In an insurance sector that remains fragmented, the case for continued consolidation is strong.

While funding is likely to be challenging for some time to come, investment in M&A could help companies to develop complementary earnings streams, realise opportunities for cost-saving synergies and strengthen their presence in the regional markets.

Smart targeting, skilful execution and effective post-merger integration will be critical in ensuring the success of any deals.