The Development of Microinsurance in Kenya

Written by Wellington Ayugi

Despite having a great deal of companies operating in the insurance industry, less than 3% of Kenyans actually have and use insurance.

The low penetration of insurance products and services among Kenyans is attributed to many reasons. The most being the fact that fact the products have been very expensive and there has been a generally a lack of trust of the products available in the country.

Furthermore, the industry is faced with several challenges such as; a majority of Kenyans are not accustomed to saving, they have low disposable incomes, the government has inadequate tax incentives, the industry is faced with a lack of effective regulation and finally there is insufficient interpretable information about the insurance products.

So in order to manage the problem of high cost of premiums, insurance companies created microinsurance. Microinsurance products have made insurance products and services accessible to Kenyans at the grassroots level.

What is Microinsurance?

This is the packaging of insurance products to meet the needs of low-income earners for protection against risk and any other contingent events. Microinsurance is able to provide insurance with limited benefits for very low premiums.

The insurance cover consists of traditional insurance products and other similar services with the following characteristics:

A microinsurance cover consists of traditional insurance products and services with the following characteristics:

  • The contributions, premiums, and fees are usually deducted before the occurrence of a risk or event
  • The assured benefits are extended to the insured upon occurrence of the event

The cost of selling microinsurance to individuals is higher compared to groups. So most insurance providers find it simpler to underwrite group risks rather than individual risks. 

Banks, Chamaas, Saccos, Trade Associations and the like, are typically taking advantage of their current group structures to purchase microinsurance. 

Types of Microinsurance

There are 3 main service delivery models namely:

  • Partner agent model: This is the grouping between local partner and insurer;
  • Full-service model: The insurer takes over all the functions such as product development, premium collection, sales and processing claims
  • Community-based model: The insurance is wholly managed by community participants and nonprofit in nature.

How Does Microinsurance Differ from Conventional Insurance?

Microinsurance products are similar to traditional insurance in the sense that they cover unforeseen contingencies. However, there are features that are not included in conventional insurance products such as:

  1. Less expensive premiums: Microinsurance premiums are usually affordable as they are designed for the low-income earners. The payment terms are also flexible and can be determined based on a customer’s cash flow.
  2. Contracts are clearly defined with minimum restrictions: The contract clearly states the benefits and the terms of coverage. In addition, the languages in the contracts are simple with no fine prints.
  3. Simple claims process and documentation: The microinsurance application forms require minimum customer information and also the process of settling claims is shorter with fewer formalities required.

What Are The Challenges of Microinsurance

Microinsurance products being in the country has still not been able to increase the numbers of people who utilize insurance products and services. The challenges the industry is facing are:

  • There is not a very good understanding of microinsurance
  • There is a lack of appropriate information readily available on microinsurance
  • The legal framework surrounding microinsurance is still not comprehensive
  • The distribution channels are not the same as for conventional insurance

In summary, the insurance sector has witnessed slight growth as a result of embracing mobile money platforms but it is still not enough.

There is still a  need to improve and innovate the microinsurance products and increase awareness among Kenyans. This will enable more people to access microinsurance products as shown in the video below.

Do you think microinsurance is a good idea? Should it be accessible to everyone not just low income earners? Let us know in your comments section below.

Learn More:

  1. Kenya microinsurance landscape market and regulatory analysis
  2. Mobile money and insurance in Africa whats the connection

About the author

Wellington Ayugi

Wellington Ayugi handles Business Development at Covered and has a passion for personal finance, microfinance, and developments in financial technology