Broadening and preserving the pie for profitability – abridged version of IIK Insurance Industry CEOs’ Forum deliberations

The primary purpose of the Insurance Institute of Kenya (IIK) is to serve the Kenyan insurance industry. It does achieve this fete by empowering its players with professional education, well researched industry knowledge and insights, as well as enabling industrywide networking for its members.

To this end, IIK held a workshop that brought together insurance industry’s chief executives and leaders, focusing on the theme “Broadening and Preserving the Pie for Profitability” .This was a befitting topic to deliberate on during this Covid19 pandemic-driven global recession season and the salient issues discussed revolved around economic, business, regulatory and social environmental challenges and opportunities with a view to reversing the rapidly declining industry’s market penetration through the last five years. IIK choose the virtual workshop approach where the c-suite industry captains and the industry’s regulator (the Insurance Regulatory Authority – IRA) were invited to come out with recommendations that would be long lasting solutions for profitably along with expansion and retention of the insurance industry’s business pie. To facilitate the workshop, IIK engaged three key local and international professional firms and consultants: Chartered Institute of London, KPMG and Insurance Information Bureau.

This abridged report affirms that the declining trends are reversible; the pie can be retained and broadened; and there are short-term and long-term solutions to the challenges. All these assertions are buoyed by research forces at work, data management, market segmentation and product solutions and supported by apt distribution systems, deliberate customer relationship initiatives and service digitalization and more importantly, there are numerous untapped opportunities for growth. The industry leaders have been especially challenged to take charge of rapid change, to disrupt from within and to benchmark with the best locally and globally.

This summarized report contains sub-headings, and formatted bullet points for ease of reference as follows:

Penetration Trends and Ratios

According to IRA 2018 Annual Report, the global insurance industry accounted for 6.1% of the world GDP; was dominated by life business, accounting for 54.3%, while non-life business accounted for 47.5%, with a combined growth of 3.2% over 2017.

In contrast, AKI’s Insurance Industry Annual Report of 2018 for the Kenyan insurance industry indicate that GDP penetration ratio declined to 2.4% (compared to 2.7% in 2017); was dominated by non-life business accounting for 59.62% (being Kshs128.85 billion), while life business accounted for 40.38% (being Kshs87.26 billion). Motor and medical classes were the main contributors of the non-life business. Meanwhile, in the same period, Kenyan economy grew by 5.9%, up from 4.9% in 2017 in real GDP, being one of the fastest growing economies in SubSaharan Africa.

The industry is, therefore, challenged to reverse these adverse trends and ratios through a combination of strategies and actions plans (outlined in the sections that follow) among them being:

• Increasing penetration to 10% in the next 5 years;
• Increasing life policyholders from the current 500,000 to 1 million in the next 5 years;
• Targeting market segments that are growing rapidly – including agriculture; infrastructure; informal sector; and the youth;
• Taking advantage of opportunities such as those associated with emerging risks for instance Covid19, climate change, cyber and digital technology crimes.

Insurance Products and Solutions

The industry products and solutions are not being developed at the same pace with the changing and more informed consumer needs and demands. Instead, the industry seems to be holding onto the traditional-legacy products which do not provide real value for the modern consumer who has countless-competing options offered by other financial services providers.

There are opportunities for the industry to be more creative, proactive and adaptive to the rapid consumer needs and demographics, and target the high tech working Gen Y, 65-70 year olds, the mass market and the informal sector; as well as design products that offer solutions for emerging risks associated with cyber threats, money laundering and climate change. Insurers should also benchmark with and adopt rapidly according to the pattern set by FinTechs, Banks, Saccos, and Telcos.

To make continuous profits, the industry should employ risk-based approach and complete risk assessment to price its products and solutions, and develop flexible premium payment models to attract and retain customers. Customers can also be retained through loyalty programs such as premium discounts and holidays.

Each insurance company should embrace heathy competition (not the typical undercutting) based on providing differentiated products and superior service.

Distribution Channels

Whereas the existing distribution channels are not prepared for the evolving and educated consumer that seeks trust, speed, and value addition, they should be. The industry should radically transform and provide distribution channels that match the consumer of today through professional training, CPD programs and professional accreditations, and by developing new, alternative distribution channels.

Customer Service and Relationship

The insurance industry has been accused of relating with the customer only at transactional levels. There are opportunities for better collaboration and partnerships with both the retail and corporate customers, hence the call for well-documented customer value proposition that aims to expand and retain the pie. The proposition will incorporate easily understood policy benefits, policy wordings and claims processes, TYCF guidelines, and superior operating processes.

Customer retention and expansion can also be realized through structured consumer awareness and education, seeking customer views before launching products, for example, during CSR and CSI activities; consumer surveys and published positive customer experiences.

Research

Research, whether focusing on the consumer, marketing, professional capacity, data management, compliance and regulation, does contribute to the creation of new knowledge, ideas and sharpens critical and analytical thinking to address challenges and exploit opportunities. Past researches have been inadequate, not widely disseminated and insufficiently implemented. Present and future emphasis should lay on conducting more research and implementing findings and recommendations. Public trust should be measured, tracked and monitored on an ongoing basis.

Professional and Ethical Standards

Broadening and preserving the pie require skilled-dedicated-moral leadership. The existing gap can be narrowed through investment in training, professional accreditations and CPDs, in collaboration with professional bodies, and documenting and instilling good ethical practices. Investing in graduate training was underscored. Once IIK achieves the impending legal status, it will play a pivotal role and oversight in ensuring that the industry attains the highest possible professional and ethical values.

Digitalization and Data Management

The industry is not making optimal use of the existing IT systems and digital opportunities available through online marketing, distribution and service. Gladly, resulting from the dramatically changed business environment owing to the advent of the Covid-19 pandemic, the industry is beginning to embrace and utilize virtual and digital platforms in nearly all the aspects of business – including the marketing and selling process, operations, surveys, talent acquisition and training as well as in the communication processes.

Faced with a goldmine of data overload, the industry can take advantage of the momentum hitherto created to engage IT and data science experts to fully structure and utilize data management through appropriate warehousing, mining and analyzing of data.

Conclusion

To grow and broaden the pie profitably, the industry captains and leaders must constantly stay awake to the challenges and opportunities. Their performance dashboard should continually supply them with accurate and current information on emerging and changing solvency and governance requirements; technological environment; consumption patterns; risks; internet of things; distribution channels; demographics; economy; regulations; talent acquisition and reward systems. Thereafter, they should promptly make informed choices and decisions for growth and development.

Richard Oyare is the Executive Director of Insurance Information Bureau (IIB) and an experienced leader in the insurance industry.