Emerging consumers can unlock potential
- There is need for a shift in insurers’ mindset and a deliberate application of technology and product innovation to offer attractive value proposition to emerging consumers.
- The insurance sector’s important role in developing capital markets and building resilience of households and businesses are the key motivations for the government to intervene.
In a year, more than one third (36 per cent) of Kenyans, including the vulnerable ones, are exposed to numerous risks such as economic shocks, death, illness and loss of property due to natural disasters and calamities, the FinAccess Household Survey 2019 shows.
This high incidence of shocks underpins the urgent need for risk management solutions for individuals, households and businesses.
Formal risk management solutions such as insurance can be a potential solution. Yet the survey also found that only two per cent of Kenyans used insurance to deal with such shocks.
This highlights the huge gap between risk protection needs and insurance outreach in Kenya.
Digging deeper into insurance penetration, there is a huge disparity in insurance uptake among different income segments.
While there is reasonably high usage among the highest-income segment (53 per cent), it is quite low among the lower middle- and middle-income segments (16 per cent and 28 per cent, respectively).
These two income segments, which can be identified as emerging consumers (earning between Sh20,000 and Sh55,000 per month) constitute the highest proportion of the population. They also drive the economy through their economic activities.
However, this segment has stayed away from insurance and still resorts to traditional, inadequate risk mitigation mechanisms such as social networks.
This means they are unprotected against major shocks while the insurance industry remains underdeveloped.
Focus on these emerging consumer groups can unlock insurance potential as they have growing incomes and constitute the highest proportion of the population.
Based on Britam’s lessons while serving emerging consumers, I propose a three-pronged approach that touches on the government, industry and community.
First, there is a need for public policy interventions to stimulate the insurance sector — including conducive regulations and government spending to insure vulnerable groups.
The insurance sector’s important role in developing capital markets and building resilience of households and businesses are the key motivations for the government to intervene.
Secondly, there is a need to tap social networks such as harambees, which are a form of ex-post-risk pooling activity.
Harambees are quite prevalent and useful but have been found to be an insufficient risk mitigation measure, especially in case of multiple shocks.
Nonetheless, they are built on the principles of community self-help that can be leveraged to transform the nature of a community’s contributions to ex-ante in the form of insurance.
Finally, and most importantly, the insurance industry has to expand its horizons by not just focusing on the limited population of high- and higher middle-income individuals but also realising the potential offered by emerging consumers.
This needs a shift in insurers’ mindset and a deliberate application of technology and product innovation to offer attractive value proposition to emerging consumers.
Mr Sharma is the general manager for microinsurance at Britam.