Insurers slow on digital adoption

By Steve Umidha

Insurance companies can turn the sector’s revenue on its head and survive the pandemic blues if they digitize their indemnity offers at a faster rate, experts have said.

Kenyan insurance industry defied the Coronavirus butterflies to record a 19 percent growth in written premiums to Sh144.02 billion for the second quarter of 2021, compared to Sh121.04 billion the sector registered in a similar period last year.

Concern about possible market readjustments due to the pandemic may have been overblown given the resilience shown by insurers who saw a significant portion of their total assets swell to Sh698.05 billion or 85.2 percent held in income generating investments.

But these figures have the potential to grow beyond what is on paper, according to Jonathan Marucha, an executive director at Laser Insurance Brokers (LIB) – a brokerage firm associated with CPF Group.

“The cure lies in the development of new business strategies, rethinking what customer segments to target, and developing products, services and pricing strategies for prioritized segments. New or more digitally savvy customers will naturally be drawn to those companies with the best digital offering,” says Marucha.

The Coronavirus pandemic has seen a growing number of sectors accelerate automation and digitization, in a bid to meet customer expectations and competitive burdens – in what is now adding the necessary pressure on insurers to adjust to the norm.

“Customers now expect their ‘best digital experience’ to be the norm, regardless of which industry is providing that experience. That means that insurers are no longer competing against other insurers, but rather against the wide range of digital experiences customers now enjoy in their lives,” adds Marucha.

The Association of Kenyan Insurers (AKI) Chief executive Tom Gichuhi agrees, saying to survive the pandemic discomfort, industry players will be forced to reconsider their current business model and start offering online and short-term insurance covers to increase profit margins.

Despite the country’s broad insurance coverage, such as motor, household and business assets remain under pressure, specialized niche insurance products are seeing substantial growth. These include mechanical warranty, risk insurance and goods in transit cover, travel insurance, and cybercrime insurance.

Statistics by the industry regulator Insurance Regulatory Authority (IRA), for instance notes that the sector’s asset base grew by 11 percent to Sh819.65 billion at the end of Q2, 2021 from Sh738.72 billion held at the end of Q2 2020.

General insurance business remained the largest contributor to industry insurance premiums, contributing 59.3 percent of the total premiums at Sh85.36 billion while long-term insurance premiums stood at Sh58.66 billion in the period under review.

Claims incurred in the general insurance business class amounted to Sh32.38 billion during the quarter, a 15 percent jump from Sh28.08 billion the industry reported a year earlier.

Insurance firms have been feeling the pain from increased claims expenses, in a clear indication that is likely to sustain as the year progresses, raising the prospect of consolidation in the industry.

Those fears are being compounded by the dodgy and unpredictable Coronavirus variants seen as a threat to the business ecosystem.

Lack of innovation also has the potential to ‘rob’ insurers’ revenues in cyber theft – an area cyber criminals and IT experts continue to defraud insurance companies and customers alike.

In fact, the IRA’s recent admission of increasing fraud and forgery crimes, threatens the sector’s potential growth with the insurance sector emerging as one of the key targets for cheats.

The IRA said in April that 42 such cases among others including fraudulent motor insurance (Damage/Theft) claims were reported by insurance firms through its Insurance Fraud Investigation Unit (IFIU) Fraudulent Motor Insurance (Damage/Theft) Claim.

Given these developments, the latest data by the industry regulator points to the challenges still faced by insurers to defend themselves against fraudulent claims and abuse of annuities despite existing enforcement mechanisms.