Challenges facing the insurance industry in Kenya include;
a) Lack of saving culture among the youth
There seems to be an ignorant culture, especially among the youth with regards to insurance, as it considered boring or non-beneficial or only appropriate for the elderly rich people. This misconception could arise from lack of mass communication on importance of insurance covers and the purpose for which each type of insurance serves and making it appealing to the younger crowd. This is key as it will create more comprehensive customer relationships and make it easier for customers to do business with insurance companies. In Kenya, the Insurance Act Cap 487 Laws of Kenya has established the Insurance Authority under section 3 thereof which has been given the mandate to provide consumers with information on insurance contracts, policies and covers as well as one’s rights and duties as an insured person or rather a policy holder. This mandate granted to the Insurance Authority is pursuant to article 46(1b) of the Constitution of Kenya (2010), which provides the right of a consumer to the information necessary for one to gain full benefit from goods and services.
b) Brokers and Middlemen
‘broker’ means an intermediary concerned with placing of insurance business with an insurer or reinsurer for or in expectation of payment by way of brokerage, commission, for or on behalf of an insurer, policy holder or or proposer for insurance or reinsurance and includes a health management organization; but it does not include a person who canvasses and secures business and does not have a place of business or a resident representative in Kenya.
However, brokers post a great challenge to the insurance industry as they are well known to relay misleading information to potential customers with regards to the policies of the insurance or the type of covers available under a certain kind of insurance, and the customer applies for such an insurance cover only based on the information relayed by the broker only for the insured to find out later that the kind of covers that one has taken to be different from the actual covers available. While dealing with a broker, one should not always assume that the broker is covered the moment the insurance is ordered hence a higher chance of misrepresentation by a broker, as it was in the case of Empress Assurance Corp Ltd vs Bowring and Company ltd, where it was held that,
‘Throughout the business the brokers are simply the agents of the assured and they owe a duty to the assured of making full disclosure and if they do not make full disclosure, the underwriter is entitled to say that the policy is not binding.’
When the insured person suffers under such a misrepresentation, it breaks off the trust between the insurer and the insured and such an insured person may refrain from getting another kind of insurance cover or fail to see the relevance of insurance contracts in its entirety. Since the root cause in such a case would be the unlicensed insurance brokers and middlemen, the Insurance Act Cap 487 Laws of Kenya section
3A subsection (1c) provides that function of the Insurance Authority includes to license all persons connected in or involved in or connected with insurance business including insurance and re-insurance companies, insurance and re-insurance intermediaries, loss adjusters and assessors, risk surveyors and valuers. Licensing of all persons connected with insurance business means that even the brokers sent out as agents of their respective insurance companies shall be competent to undertake their task and facilitate the insurance contracts made between the insurer and the policy holder without some kind of a fall out that would paralyze the business such as that of misrepresentation.
c) Low levels of income
Occupation is a factor that all insurance companies ought to consider while entering into an insurance contractual agreement with a policy holder, for the purpose of determining the amount of premiums payable by the insured upon which one shall be reimbursed on the happening of the insured event as stipulated in the insurance policies. However, due to lack of employment of the majority, one is unable to pay premiums that serves as the contract’s consideration, thus discouraging a potential consumer from getting into insurance contracts to begin with. Insurance industry is a business that is customer focused in that without customers or rather the policy holders, an insurance company cannot run as it will lack capital to facilitate it and neither can it lower the premiums cutting across all covers offered for the same reason. The various insurance companies therefore saw it fit to provide covers that would be best applicable to people with low levels of income as compared to people with medium to high levels of income. A good example would be types of health insurance covers whereby there is low cost covers that targets the low income segment as it has low cost premiums and a limited range of inpatient and outpatient services. This is pursuant to the right to health as provided in article 43(1a) of the Constitution of Kenya 2010 in that as much as one is not able to pay for the medium to high cost covers under health insurance cover, one can still enter a health insurance cover as the right to health is fundamental and thus cannot be compromised in its entirety due to one incapability to pay for high premiums.
d) Mergers and acquisitions
‘Merger’ means an acquisition of shares, business or other assets whether inside or outside Kenya, resulting in the change of control of a business, part of a business or an asset of a business in Kenya in any manner and includes a takeover.’
Although the established statute mentions or uses the terms mergers and acquisition interchangeably, mergers is distinctly different from acquisitions in that mergers is the combination of two companies to form one while acquisitions is one company that has taken over by the other.
Mergers and acquisitions can be achieved through exchange of shares between or among undertakings which result in substantial change in the ownership structure through which whatever strategy or means adopted by the concerned undertakings, as provided under section 41(2g) of the Competition Act No. 12 of 2010.
They are also termed as consolidation of companies. Insurance companies merge for the purposes of increasing market share and meet higher capital requirements or diversification for higher growth products or markets.
However, mergers and acquisition pose a challenge to the global insurance industry in that questions of trust arises among the staff members of the respective insurance companies newly merged and this may affect the productivity of the newly merged company temporarily or permanently, depending on how quick the two companies can integrate better for the purpose of achieving high production and good quality services. A similar question of trust arises between the insured and the insurer where the insurer is the subsidiary company being acquired and not the new manager over the company acquired. To counteract this underlying issue, the Competition Authority of Kenya has been established under section 7 of the aforementioned Act for the purpose of approving the formation of mergers and acquisitions as well as controlling of the activities carried out by the merged companies and those acquired as well. The aforementioned authority also has the mandate to create awareness or promote knowledge on consumer rights and duties as the insured is classified as a consumer, so that one may obtain high quality of services that one pays premiums for.
e) Scourge of HIV and AIDS and other Lifestyle diseases.
HIV and AIDS is an epidemic that is governed by the HIV and AIDS Prevention and Control Act, whose main objective stated in section 3 thereof, is to promote the fundamental rights and civil liberties of people living with HIV and AIDS such as the freedom from discrimination, as well as creating awareness of HIV control, symptoms, transmission and prevention that is well mandated over by the government department, ministries and agencies. However, HIV and AIDS has been seen to greatly affect a state’s demography in all its spheres including the economy of a state. Insurance plays a key role in a capitalist state and so for such an epidemic to have a great downside on the economy, it serves as a great detriment in that state revenues are being channeled towards hospital equipment and the Antiviral drugs for HIV and AIDS patients. States also loose skilled labor in different fields such as insurance. However, the aforementioned Act, section 31 thereof provides that one should not be exempted from getting the employment or promotion that one is qualified for merely on the grounds of ones HIV status. Once the skilled laborers are employed in the insurance industry, this will rectify the issue on lack of skilled workers and the insurance industry will once again succeed it is endeavors.
Georgina Giathi answered the question on May 7, 2018 at 05:57