Micro insurance
Micro insurance
Business Model Description
Provide affordable and customer-adjusted health and property insurance through mobile platforms, focusing on agri-insurance, natural disaster coverage and production losses.
Expected Impact
Mitigate the risk against natural disasters and increase financial inclusion in Kenya, especially for farmers and small and medium enterprises.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Case Studies
Country & Regions
- Kenya: Nairobi (Province)
- Kenya: North Eastern
- Kenya: Eastern
- Kenya: Rift Valley
Sector Classification
Financials
Development need
The total financing gap for small and medium enterprises (SMEs) equalled USD 19 billion in 2017.(1) SMEs in Kenya have limited cash buffers, which can endanger their liquidity. 75% were expected to face serious payment problems by the end of June due to the pandemic.(2) The general constraints of the financial sector are access to affordable capital and long term credit.(3)
Policy priority
Finance is a key sector for Kenya's development. Financial inclusion is highlighted as a priority in the Kenya Vision 2030, the Big Four Agenda and the country's development and transformation plans.
Gender inequalities and marginalization issues
This sector is characterized by a substantial discrepancy in the access to credit between males and females.(4)
Investment opportunities introduction
Kenya is a financial hub and aims to create a regional finance center in Nairobi. With increasing financial inclusion and the surge in mobile payment services (10% between 2018-2019) (5), the appetite for this sector is rising.
Key bottlenecks introduction
Bottlenecks include a lack of specialists, discrepancy between ticket sizes (investors satisfy only considerable tickets while SMEs needs are usually small), the high default rate of borrowers, lack of collaterals, lack of customer adjusted financial instruments (e.g. weather based insurance).
Insurance
Development need
Lack of insurance among low income groups may generate poverty loops, as indicated by studies in sub-Saharan Africa. When they go through health shocks or damage to their businesses, vulnerable groups are often forced to sell their personal assets or request loans from informal moneylenders.(8)
Policy priority
The insurance industry is one of the key pillars for development under the Third Medium Term Plan (MTP III) 2018–2022. It is expected to contribute to and drive the realization of high levels of savings to finance Kenya’s investment needs.(9)
Gender inequalities and marginalization issues
In the 35-64 age group, females were reported to have lower access to crop and livestock insurance than men (0.8% for men and 0.5% for women).(9)
Investment opportunities introduction
Kenya's insurance sector has achieved stable growth. In 2018, the gross industry premium equalled USD 2 billion (KES 216.26 billion), which indicates a nominal growth rate of 3.5% from the previous year.(9) Annual population growth of over 2% (10) will likely contribute to maintaining or even accelerating growth.
Key bottlenecks introduction
Bottlenecks in this sector include the lack of a risk-based capital regime to ensure insurers maintain adequate capital levels, lack of consumer-centric policies and practices to enhance consumer protection and rights, and a trust deficit from the public about the sector as a whole.(11),(12)
Insurance
Pipeline Opportunity
Micro insurance
Provide affordable and customer-adjusted health and property insurance through mobile platforms, focusing on agri-insurance, natural disaster coverage and production losses.
Business Case
Market Size and Environment
> USD 1 billion
Kenya's insurance sector has achieved stable growth. In 2018, the gross industry premium equalled USD 2 billion (KES 216.26 billion), which indicates a nominal growth rate of 3.5% from the previous year.(9) Annual population growth of over 2% (10) will likely contribute to maintaining or even accelerating growth.
Also, digital insurance has favorable perspectives. with the market expected to grow from USD 5.2 million in 2017 to USD 24.5 million in 2022.(13)
In 2018, 4.9% of population incurred catastrophic health expenditure and only 20% was enrolled for some form of health insurance.(14)
Indicative Return
5% - 10%
High sector growth translates into high yield. with market leaders achieving a profit margin between 5% and 10% in 2018.(15)
Insurance industry net profit equalled USD 67.2 million in 2018.(9)
Investment Timeframe
Medium Term (5–10 years)
Average timeframe required for the insurance subsector ranges from 0 to 10 years, depending on scale.(16)
Setting up an insurance company takes little time, but it requires some time to scale up, model the right premiums, ensure the right coverage and target the right groups.
Ticket Size
USD 1 million - USD 10 million
Market Risks & Scale Obstacles
Market - Volatile
Market - Highly Regulated
Market - trust deficit in new product
Impact Case
Sustainable Development Need
People around the poverty line are highly vulnerable to health shocks, because they rarely have any form of health insurance. To cover their medical expenses, they are often forced to sell their personal assets thus reducing their living standards, or to take out a loan from an informal moneylender.(8)
Kenya's insurance sector remains underdeveloped, although it can be considered a mature market compared with the regional average. The relatively large number of operating companies fragments the market and deteriorates service quality.(3)
Quality is important to convince people of the benefits of insurance. Currently Kenyans often have a negative perception of local insurers, don’t have access to appropriate insurance products and face poor handling practices. Together with high prices, these factors prevent sector development.(9)
Gender & Marginalisation
In the 35-64 age group, females had lower access to crop and livestock insurance than men (0.8% for men and 0.5% for women). In contrast, in the 16-34 age group, there is nearly no agricultural insurance for men and 0.2% for women.(9)
Expected Development Outcome
Reduced inequalities caused by accidents and disasters
Mitigated production disruptions
Reduced impact of disasters
Gender & Marginalisation
Increased financial inclusion for women
Primary SDGs addressed
1.1.1 Proportion of the population living below the international poverty line by sex, age, employment status and geographic location (urban/rural)
1.3.1 Proportion of population covered by social protection floors/systems, by sex, distinguishing children, unemployed persons, older persons, persons with disabilities, pregnant women, newborns, work-injury victims and the poor and the vulnerable
36.80% (Share of the population living in extreme poverty-international poverty line) (21)
N/A
0%
N/A
3.8.2 Proportion of population with large household expenditures on health as a share of total household expenditure or income
N/A
N/A
Secondary SDGs addressed
Directly impacted stakeholders
People
Corporates
Indirectly impacted stakeholders
Corporates
Outcome Risks
Deepening social inequalities because wealthy citizens have a better access to insurance (e.g. rates adjusted to wealth may be prohibitive for poor) (17)
If an insurance company provides low-quality services, the reputation of the insurance sector may further deteriorate.
Gender inequality and/or marginalization risk: There is a risk that premiums may be higher for low income households and women.
Impact Risks
Gender inequality and/or marginalization risk: Stakeholder participation risk - The experience and expectations of women and low income stakeholders may not be accounted for.
Impact Classification
What
Providing affordable insurance is likely to have a positive impact because it will protect people from the losses and help them manage risk as well as raise access to healthcare.
Who
People willing to mitigate risk, small and medium enterprises, property owners who are aggrieved due to lack of affordable insurance.
Risk
Although the model is market proven, there is significant dissatisfaction from current insurance services in Kenya, which can inhibit upscaling.
Impact Thesis
Mitigate the risk against natural disasters and increase financial inclusion in Kenya, especially for farmers and small and medium enterprises.
Enabling Environment
Policy Environment
Third Medium Term Plan (MTP III) 2018–2022: The insurance industry is one of the key pillars for development under MTP III, and is expected to contribute to and drive realization of high level of savings to finance Kenya’s investment needs.(7),(9)
The government will support farmers to access agriculture insurance to manage risks and losses among smallholder farmers, and increase crop productivity and livestock production through improved access to credit and higher yielding technology.(7)
One of the strategic goals of the Insurance Authority is policy and market development for inclusion and enhanced access to insurance products and services.(9)
The Nairobi International Financial Centre will be established and made fully operational as a major regional center for financial services in the sub-Saharan Africa market.
Other initiatives include establishing a Financial Services Authority, developing digital finance and deepening capital markets.(7)
Financial Environment
Fiscal incentives: Newly listed companies receive preferential corporate tax rates depending on the percentage of listed shares. (The normal rate is 30% for resident corporations and 37.5% for non-residents.) Commercial buildings receive a 25% capital deduction in developed areas.(19)
Other incentives: Deductions are granted on the cost of buildings and machinery (19). Investments in Nairobi, Mombasa and Kisumu attract a 100% investment allowance; investments worth KES 200 million situated outside Nairobi, Mombasa, Kisumu attract a 150% investment allowance.
Regulatory Environment
Insurance Act, Chapter 487, laws of Kenya: This Act regulates and supervises the insurance sector.(9)
Paid up share capital as prescribed in the Insurance Act may apply under: (a) long term insurance business of KES 150 million (USD 1.4 million); (b) general Insurance business of KES 300 million (USD 2.8 million; and (c) reinsurance business of KES 800 million (USD 7.4 million).(18)
A certificate from the Central Bank of Kenya specifies the amounts and details of deposits under section 32 of the Insurance Act.(18)
The insurer license fee costs KES 150,000 (USD 1,400).(18)
Marketplace Participants
Private Sector
GroFin, East African Community, CIC Money Market Fund, BRITAM Money Market Fund
Government
Insurance Regulatory Authority
Target Locations
Kenya: Nairobi (Province)
Kenya: North Eastern
Kenya: Eastern
Kenya: Rift Valley
References
- (1) Khanna, M., Wimpey, J.S., Bruhn, M., Singh, S,, Hommes, M. and Sorokina, A. (2017). MSMEs Finance Gap: Assessment Of The Shortfalls And Opportunities In Financing Micro, Small And Medium Enterprises In Emerging Markets. World Bank.
- (2) UNKenya (2020). The Socio-Economic Impact of COVID-19 in Kenya.
- (3) World Bank (2019). Country Private Sector Diagnostic - Creating Markets In Kenya: Unleashing Private Sector Dynamism to Achieve Full Potential.
- (4) International Finance Corporation (2019). Her Home - Housing Finance for Women, https://housingfinanceafrica.org/app/uploads/HousingFinanceWomen1-29-20.pdf
- (5) Communication Authority of Kenya (2019). Annual Report 2019.
- (6) Sachs, J., Schmidt-Traub, G., Kroll, C., Lafortune, G., Fuller, G., Woelm, F. (2020). The Sustainable Development Goals and COVID-19. Sustainable Development Report 2020. Cambridge: Cambridge University Press.
- (7) Republic of Kenya (2018). Third Medium Term Plan 2018 – 2022 Transforming Lives: Advancing Socio-economic Development Through The 'Big Four.
- (8) ) United Nations Development Programme (2020). Articulating the Pathways of the Socio-Economic Impact of the Coronavirus (COVID-19) Pandemic on the Kenyan Economy.
- (9) Kenya Insurance Regulatory Authority (2019) Insurance Industry Annual Report 2018.
- (10) National Treasury and Planning and State Department for Planning (2020). Second voluntary national review on the implementation of the sustainable development goals.
- (11) Insurance Regulatory Authority (2019). Kenya Financial Stability Report 2019. Financial Sector Regulators. https://www.ira.go.ke/index.php/publications/publications
- (12) World Bank (2019). Insurance That Works: What Drives Insurance Sector Development In Kenya, What Are Some Opportunities Ahead?https://openknowledge.worldbank.org/bitstream/handle/10986/33177/Insurance-that-Works-What-Drives-Insurance-Sector-Development-in-Kenya-What-are-Some-Opportunities-Ahead.pdf?sequence=1&isAllowed=y
- (13) Frost and Sullivan (2018). Digital Market Overview: Kenya. A White Paper.
- (14) Dutta, A., Maina, T., Ginivan, M. and Koseki, S. (2018). Kenya Health Financing System Assessment 2018: Time to Pick the Best Path. Washington, DC: Palladium, Health Policy Plus.
- (15) Deloitte (2019). Insurance Outlook Report 2019/2020 East Africa.
- (16) Njoroge, Dr P. (2020). Presentation on the Status and Outlook of Kenya’s Banking Sector 2020. https://www.centralbank.go.ke/uploads/presentations/1483113962_PRESENTATION%20ON%20KENYA'S%20BANKING%20SECTOR%20SITUATION%20AND%20OUTLOOK.pdf
- (17) Kabia, E., Mbau, R., Oyando, R., Oduor, C., Bigogo, G., Khagaui, S. and Barasa, E. (2019). 'We are called the et cetera: experiences of the poor with health financing reforms that target them in Kenya', International Journal for Equity in Health, 18, 98. https://equityhealthj.biomedcentral.com/articles/10.1186/s12939-019-1006-2
- (18) Insurance Act, Chapter 487. http://kenyalaw.org/kl/fileadmin/pdfdownloads/Acts/Insurance_Act_Cap_487.PDF
- (19) KENIvest. Investment Incentives. http://www.invest.go.ke/starting-a-business-in-kenya/investment-incentives
- (20) APA Insurance (2020). Micro insurance. https://www.apainsurance.org/product_commercial_micro.php
- (21) SDG Tracker (2021). End poverty in all its forms everywhere. https://sdg-tracker.org/no-poverty