In last week’s article, we explored the general state of the Kenyan insurance sector. We looked at its competitive nature, the general themes of its recent changes toward rationalisation, and its potential for growth.

In this article, we intend to take a closer look at this potential future. If you haven’t read last week’s article, then we suggest you do so. It outlines the necessary background to understand how insurance may develop in this country.

We are all stakeholders in the growth of the Kenyan economy and the insurance sector is an integral part of that complex machine. Insurance exists to minimise risk for entrepreneurs and entrepreneurial spirit is what drives economic growth and opportunity.

Understanding how this sector might perform benefits all of us businesspeople. It will have a bearing on the competition in our sectors, the wealth of our clients and new avenues for investment.

Coronavirus: Impacting pay-outs

The most obvious hurdle that the insurance industry has to overcome right now is that which is on everybody’s mind: the Coronavirus. The insurance industry exists to protect individuals and enterprises from the misfortunes this world can throw our way. Though it exists for this purpose, a large-scale pay-out like the one we can expect in the wake of this virus’ passing, will hugely impact the industry.

The industry, as a whole, relies on the fact that the amount its providers receive in subscriptions is greater than that which they pay out in disbursements. In a stable, growing economy, enterprising individuals and businesspeople look to safeguard their financial and material interests. Thus, the sector booms. In a time of crisis such as now, however, the industry’s main purpose is releasing pay-outs.

As we discussed in the last article, Kenya’s insurance companies have largely focussed on penetrating the middle and large-income enterprise market.

They have been quite successful in doing so. As a result, there are plenty of these enterprises – airlines, hotel chains, farms, importers and exporters, most obviously – who will be suffering quite heavily from the lack of tourism and damage to supply chains that this pandemic is causing. Many, if not all, of these middle to large enterprises are already recording ‘business interruption’ losses and are filing insurance claims under this bracket.

General liability insurance providers can also expect to see a rise in claims. Professionals within the industry expect third-party bodily injury claims from firms that might be blamed for not offering enough protection from the virus to customers or employees. Employment practice liability insurance will also see a rise in claimants if they can attest to their mistreatment when it comes to lay-offs or the furloughing employees.

Additionally, certain of Kenya’s insurance providers provide liability insurance to directors and officers. If shareholders can prove that the firms they own in part failed to enact a suitable contingency plan for this virus, then they will claim on these liability policies.

These are several major examples of the claims that insurers will be receiving currently and can expect to continue to receive. All these insurance pay-outs will drastically undermine the profitability and growth of insurance globally, not just in Kenya.

This pandemic will promote a record number of insurance claims and it will, undoubtedly undermine the future growth of the insurance industry. Interestingly, the effect on the industry will not end with these claims.

Reinsurers are insurance companies that offer insurance to another insurance company insulating the second company from a major claims event. This pandemic is certainly a major claims event.

For more information on the pay-outs expected from the affects of this pandemic follow this link to the Insurance Journal.

Strengths: Kenya’s growth – a potential for recovery however long it may take

Seldom does an event such as this come around which is so influential as to cause the huge and diverse set of pay-outs listed above. This is a once in a lifetime event and, however difficult it may be to imagine now, the Coronavirus will pass. When it does, Kenya’s economic landscape will revive some of its earlier character.

Part of what makes Kenya so attractive to large international insurance providers are the factors that are likely to spearhead a post-Coronavirus recovery. Kenya’s middle class is a rapidly growing one, its infrastructure is developing quickly and new energy schemes and urbanisation mean there is large potential for the growth of the market.

Many of these factors will suffer at the hands of the global economic downturn expected in the wake of this virus. However, Kenya’s young, increasingly aspirational and well-educated middle class will be expected to lift enterprise once more in the country. They will not disappear and this is the largest strength of the insurance industry in this country.

Threats: the need for an attitude change and the end of fraudulent claims

Without a doubt the virus is the greatest immediate threat to the stability of Kenyan insurance. There are, however, others that may hinder the market’s recovery and will also require addressing if the sector in Kenya is to ever be as profitable as equivalent insurance sectors in more developed markets.

Smaller Kenyan businesspeople are not targeted by insurance firms. They are a demographic as yet untapped and the reason why has two parts. Firstly, insurers do not believe they are a section of the market worth targeting and, secondly, the smaller businesspeople do not trust or understand the purpose of insurance.

This attitude needs to shift on both sides for insurance to encroach unto this sector of the Kenyan populace.

Furthermore, of those that do already own insurance – for example, motor insurance, of which 3rd party is a legal requirement in Kenya – fraud has to be cut out. The insurance industry is not so well-policed in Kenya as it is in other parts of the world. Too often do policyholders attempt to subvert the process by making false claims.

If some machinery or shift in action can be implemented to undermine this practice then insurance in Kenya will have overcome one of its more challenging hurdles.

Summary

The future of insurance in Kenya is, for now more than ever, unstable. Prior to the coming of this virus, international stakeholders and professionals within Kenya were optimistic about the potential for growth in the insurance sector.

The total value of pay-outs that will come of this development is likely to be something huge. But the optimism that surrounded Kenyan insurance will eventually return. As damaging as this pandemic will be, it will not undermine Kenya’s march towards a greater dispersal of its significant wealth.

In Kenya’s economic recovery, we will see the recovery of insurance and the jobs it offers in this industry. As the sector recovers, it will lend greater security to entrepreneurs. With risk minimised, enterprise will grow and so too will the size of the job market. A strong and growing economy is good for all of us.

It promotes opportunity, development and, for those of us concerned with document archiving, a paper trail that needs storage.