Insurance firms target low-end market via phones

The sale of insurance products through the mobile phone has opened a new door for the sector to roll out cheap products expected to spur growth in the Kenyan market.

The technology is set to cut the high administration costs that made it difficult for local firms to enter the micro insurance market that has been tipped to deepen insurance penetration, which has remained at a mere 2.5 per cent of the population for nearly a decade.

Micro insurance offers risk cover to the poor with its main features being small amounts of premiums paid by policy holders.
Equity Bank and Safaricom have launched a mobile based platform that allows consumers to make payments, which are as low as Sh530 annually or Sh10.2 weekly, that local insurance firms are hoping will help them capture the low end of the market.

The mobile-based payment is set reduce the insurers wage bill and distributions costs such as running branches and agents commissions, which are insurers’ biggest cost item.

“Collection of insurance premiums and payment of claims is one of the major challenges of the insurance sector and the ability to do these through mobiles will cut costs and reduce customer inconvenience,” said Joseph Kameri, the marketing and distribution manager at UAP.

He added that savings brought by the mobile based payment system will in turn create headroom for lowering the cost of insurance products, especially those targeted at the low end market.

Analysts say that the service will help in taking micro insurance to the bottom end of the market where they are needed the most but where insurance firms find it too expensive to operate because of thin volumes.

The low insurance penetration has been blamed low confidence in insurance products and lack of products targeted at the low and mid-end niches.

This has seen the local insurance sector perform dismally compared to its peers in the financial industry notably the banking sector.

“Micro insurance presents a major growth opportunity for the insurance industry in Kenya because it is inclusive of most of the population,” says Ashok Shah, the managing director of APA Insurance.

The entry into the down market is not only expected to guarantee a steady stream of earnings for these firms, but also offer an opportunity for individuals and SMEs to be roped into the insurance bracket.

In doing so, local insurers will be following in the footsteps of the banking sector that went down-market in 2003 -- leading to sharp a growth in the sector.

Banks have seen pre-tax profits grow from Sh7.1 billion in 2004 to Sh24.6 billion in 2008 compared to that of the insurance sector that dropped from Sh1 billion to Sh500 million over the same period.

Already, local insurance firms are angling to be part of the Equity-Safaricom deal, egged on by the large number of Equity and Safaricom clients who are uninsured.

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