Convenience and efficiency through adoption of alternative channels for both distribution and premium collection such as Bancassurance and improved agency networks, advancement in technology and innovation in premium payments like through mobile phones and a growing middle class, which has led to increased disposable income, saw financial services sector and insurance sector registering an improved growth of 2.1% points, to 6.7% in H1’ 2019, from 4.6% in H1’ 2018.
In H1 of 2019, insurance companies increasingly took advantage of digital transformation to drive growth and increase insurance penetration in the country. Insurance companies were able to automate manual processes and duplicity of information across data gathering, risk profiling and pricing of the policy. The industry also applied the use of Artificial Intelligence (AI) in areas such as customer experience, process optimization and product innovation.
The solvency margins on the listed insurance space have declined to 26.9% in H1’ 2019 from 27.9% recorded in 2018, indicating that assets have been growing faster than shareholder’s funds. In 2018, Swiss RE acquired 50.0 million shares in Britam Holdings equivalent to a 13.8% stake, bringing the total stake at Britam to 15.8%. Although the parties did not disclose the value of transaction, the market valued the transaction of Kshs 425.0 million. Kenya First Assurance was also acquired by Barclays Africa Group for USD 29.0 million and Africa Merchant Assurance (AMACO) is seeking to raise USD 5.0 million – USD 7.0 million through a stake sale.
With the new capital adequacy assessment framework, capital is likely to be critical to ensuring stability and solvency of the sector to ensure the businesses are a going concern.
Fraud is still one of the biggest challenges faced by the insurance industry. Estimates indicate that 25.0% of insurance industry income are fraudulently claimed, with motor and medical claims being the most common. In Q2’2019, 30 fraud cases were reported, with 27 cases pending investigation, 2 cases pending before court and 1 had already been finalized. Block chain and artificial intelligence is helping underwriters to curb fraud within the sector
Due to cut throat competition, some insurance companies secretly offer clients unrealistically low premiums in order to gain competitive advantage and to protect their market share through a process known as premium undercutting.
The other main challenge faced by the industry, is regulations, both in Kenya and regional markets. For instance, in Tanzania, insurance brokers are required to be at least two-thirds (66%) owned and controlled by citizens of Tanzania. In Kenya, regulation on capital has made it difficult for smaller insurance companies to continue operating without increasing their capital or merging in order to raise their capital base.
Key Industry Figures
In H1’2019, insurance companies on average grew their EPS to 3.8% compared to 3.2% in 2018, a 0.6% growth. Premiums grew by 5.7% in H1’2019, compared to a decline of 8.2% in H1’2018, while claims remained flat on a weighted average basis. The loss ratio across the sector decreased to 77.2% in H1’2019, from 84.2% the previous year, owing to introduction of tough measures by market players to reduce fraudulent claims. The expense ratio decreased to 49.1% in H1’2019, from 60.2% in H1’2018, owing to a decrease in operating expenses through cost rationalization and awareness. The insurance core business still remains unprofitable, with a combined ratio of 133.7% as at H1’2019, compared to 144.4% in H1’2018. On average, the insurance sector has delivered a Return on Average Equity of 5.7%, an increase from 3.9% in H1’2018.
Outlook of the Sector
The synergy between banks and insurance companies to offer Bancassurance is expected to continue, with penetration levels in insurance companies still low. Integration of mobile money payments to allow for policy payments is also expected to continue because of convenience which it provides and also mobile phone penetration in the country is high.
Technology and innovation capabilities are set to continue being the key anchors of growth for Sub-Saharan Africa. It is also expected that regulation in the sector will increase, as well as increased consolidation to reduce duplication of products by insurance companies. These efforts will improve revenue channels for insurance firms and uptake of insurance products to enhance the sustainability of profitability.