Future of Insurance in East Africa.

Ezekiel Macharia FIA.

The future of insurance in East Africa will be geared towards the mass-market. This will be assisted by new & emerging technologies that are making it increasingly feasible while maintaining profitability.
In the short to medium term, it will be possible to measure and understand complex risk and draw the line at which the customer will be willing to transfer some of these risks to a third party – in this case – the insurer.
Such technologies include affordable weather satellite imagery that make Index-Based insurance possible. This means that farmers are able to purchase insurance and get compensation in case of drought – passing climate risk to the insurer – enabling investment and growth in the agricultural sector.
Technologies like mobile money (e.g. MPESA) will make it possible for insurance premium to be paid more regularly, say daily, and also facilitate the actual daily premium to be as low as KES 5 ($ 0.05) per day. This payment schedule is more suitable for a farmer who is paid daily for milk deliveries or green tea to his local factory. This will now be electronically administrated by the insurer with ease compared to ten years ago (Year 2005) where the farmer had to take a trip to his local town to make the payments in hard cash.
Such mass market products fall under the term micro-insurance which is defined as “the protection of low-income people (those living on between approximately KES 100 ($1) and KES 400 ($4) per day) against specific hazards in exchange for regular premium payment that is proportionate to the likelihood and cost of the risks involved”.
The Actuarial Society of Kenya is cognizant of this gradual paradigm change and has formally constituted a Micro-Insurance Working Party to tackle this important initiative. The membership of this special committee comprises of more than ten fully qualified & practicing local actuaries from both the insurance industry and consulting world. This team will take on the challenge of steering micro-insurance development in East Africa over the next five years.
The key focus of the micro-insurance working party will be:-

  1. Development of a Micro-insurance Actuarial Technician (MAT) qualification to support pricing and reserving of micro-insurance business. This is expected to gradually improve the pool of expertise required to support the actuarial requirement of emerging micro-insurers.
  2. Development of guidelines on micro-insurance product pricing to protect shareholder wealth.
  3. Development of a practicing certificate regime to enable firms that may not have the in-house resources to assess whether a particular MAT has the appropriate technical expertise. This is will be an appropriate way to support the management & Boards of micro-insurance companies in making appointments.
  4. Supporting development of micro-insurance in East Africa

Micro-Insurance in Africa has been growing by an average of 150% with a high percentage attributed to the Southern Africa countries. This trend is expected to gradually change in the next few years with East, Central & Western African countries expected to lead the growth in micro-insurance.
The market is currently dominated by life & credit products with marginal sales in health, accident, property and agriculture. A key reason for this is the relative ease of selling life insurance products (funeral plans) and the fact that they are considered entry products before the market evolves to more complex products like “index-insurance”.
The key distributors of these micro-insurance products are markedly different from the traditional sales channels and include community based organizations, NGOs & mutuals (“chamas”).
Finally, we also expect to see an increasing role of Big Data and the usage of cognitive systems like IBM Watson in understanding these risks and adjusting premium in real-time.
The Author is the Chairman of the Micro-Insurance Working Party - The Actuarial Society of Kenya