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Signs of life in Kenyan insurance industry

Generally, the insurance market is not doing well. According to analysis by Asoko Insight, the numbers are not encouraging. However, the data coming from Kenya shows signs of life in comparison to Ghana. In a previous analysis on Ghana, Asoko noted a general underperformance of the market.
Asoko Insight specialises in providing market analyses for the benefit of its clients. Specifically, the firm focuses on the performance of various priority companies, public and private.
Demographic dividend
According to data it collected on the Kenyan market, the overall assessment is that of a market that has potential. As per the assessment, there are more and increasing opportunities for growth. First, the country has better demographics compared to Ghana. For instance, the population of Kenya is now at 45 million and is growing fast. Obviously, this implies a larger market.
Secondly, data indicates Kenya has one of the fastest growing middle classes in Africa. In essence, this implies that consumption levels are going to increase. For instance, more Kenyans are going to want to buy vehicles. Subsequently, this will lead a higher demand for motor vehicle insurance packages.
With a market penetration of approximately 2.76%, the insurance sector has a sizable market. In fact, statistics from the Association of Kenya Insurers predict a growth of the penetration to 6% in 2020. This, in addition to high, and increasing, population, the future is bright for the industry.
Some weak numbers…
However, looking at the existing data indicates some points of concern. According to Asoko data, the General Insurance (GI) sector of the insurance sector is growing quite slowly. The data indicates a 6.3% growth in premiums. On the contrary, Long term Insurance (LI) insurance sector seems to be doing fairly well. At 26.11% this is a good number. It indicates a more appetite for longer term cover.
Nonetheless, the statistics in terms of profits are anything but encouraging. Particularly, General Insurance has a 5.35% profit before tax. On the other hand, long term insurance posted a 5.27% profit before tax. All the data comes from the first quarter of 2017. With the increasing taxes in the country, this indicates a net loss in the period.
Asoko attributes the poor performance on the profit front to a raft of legislations during that period. Notably, the government introduced an interest rates cap in the banking sector. Basically, this means banks cannot impose rates higher than 4 basis points. Meanwhile, banks are not allowed to give interests on long term deposits to lower than 7%. As a result, there was a low uptake of credit.
Increased growth
Nevertheless, there is a glimmer of hope amid all the developments. According to Asoko, the government put in place laws that increase business for local insurers. First, all local importing companies must take insurance cover with local insurers. Secondly, the introduction of Takaful provisions will increase premiums from the Muslim market segment.
Further growth will come from government; Increased government spending in the construction industry, such as in Phase 2 of the Standard Gauge Railway project and expansion of Kenyan roads is likely to see more policies underwritten as a direct result of increased construction activity.

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