Kenyan Microinsurance begins to grow
Daily Nation, 22 February 2010, Winfred Kagwe
The rich and poor are equally faced with political turmoil,
health problems, natural disasters and other risks, but it is the
poor who suffer more.
Insurers have lately set their sights on the low income bracket,
where insurance is needed most.
Known as microinsurance, and characterised by low premium and
low coverage limits, products designed to service low-income people
and businesses are taking shape in developing countries.
Even the International Labour Organisation (ILO) too is working
to deepen uptake of insurance in the down market.
Mr Craig Churchill, head of the Microinsurance Innovation
Facility at the ILO and director of the Microinsurance Network,
says such cover is intended to protect the working poor.
"Although their risks are anything but micro," he said, "the
term refers to the income or asset level of the target group
previously ignored by mainstream insurance schemes for being
financially challenged."
In October 2009, the ILO estimated that in Africa only 14.7
million people had access to microinsurance, 1.35 million of them
in Kenya.
Only 2.6 per cent of Africans living on or below two dollars a
day have access to insurance products, meaning over 97 per cent of
the low income market is without insurance.
"To distribute insurance to low-income people, insurers are
using alternative channels and organisations that already have
financial transactions with the low-income market, and more
importantly have the trust of the market," says Mr Churchill. They
include microfinance institutions, Saccos and religious
organisation.
Cooperative Insurance Company (CIC) has partnered with National
Hospital Insurance Fund, K-Rep Bank, Faulu Kenya, KADET and others
to offer a composite product to rural areas dubbed Bima ya
Jamii.
This is a comprehensive insurance package at Sh3,650 per family
per year translating to Sh10 per day.
Kenya Orient in 2008 launched 'Bima Safari', a Sh30 a day travel
insurance bought through the mobile phone. Last week Apollo Life
assurance and Microensure launched a life and credit policy for
micro-finance borrowers that will cost between Sh200 to 400 per
year, about Sh7 per week.
Experts say, though, that it is not just about reduction of
premiums that will boost microinsurance.
"One of the most common mistakes insurance companies make when
entering the market is to take an existing product and reduce the
benefit limits and the premiums without conducting a full review of
the products terms and conditions," says Mr Moses Banda, the
country manager of Microensure, a microinsurance intermediary in
Africa and Asia.
For example, a life insurance product for a CEO of a big company
will show pre-existing illnesses, yet this cannot be applied to a
person living in the slums with no medical records.
"Insurance companies have to look at the exclusions and bear in
mind the realities of the low income sector," says Mr Banda.
Severe weather can wipe out a family's crop and the death of a
breadwinner can force children out of school and into the labour
market, says Mr Churchil.
"Microinsurance has the potential to help low-income families
cope with these and other risks for the cost of an affordable
premium. Although this group is indeed 'financially challenged'
perhaps the question should be how can they afford to effectively
manage their risks, through insurance and other means."
MicroEnsure has specialised in developing low-end insurance
products and enhancement of sales channels. Mr Banda says in the
last few years penetration of insurance to the poor has been aided
by mobile phones companies, acting as the sales points.
The microinsurance in Kenya currently operates under the
existing Insurance Act.
"We are in the process of amending the Act to develop a policy
which will be used as a guideline to develop microinsurance in
Kenya," Noella Mutanda, Insurance Regulatory Authority, Head
Corporate Communications told smart company.
Some countries such as India and the Philippines have
established regulations.
"By far, India is the world's leader in microinsurance
development which was driven from the 1990s by a requirement by
regulators that private insurers have a portion of their portfolios
in the rural and social sectors" says Mr Churchill.
In Africa demand for microinsurance is growing. ILO is also
working on a project with the International Livestock Research
Institute (ILRI) to experiment with livestock insurance for
pastoralists using satellite technology to monitor available
fodder.
The product will be underwritten by UAP and distributed by
Equity Bank.