Business

Insurance policy cancellations rise to Sh10b as tough times bite

Insurance policy cancellations rise to Sh10b as tough times bite
By Patrick Alushula | January 14th 2022

 

Insurance payments to customers abandoning policies hit Sh10.45 billion in the nine months to September last year on coronavirus-induced economic hardships.

The latest data from the Insurance Regulatory Authority (IRA) shows the value of policy surrenders increased from Sh7.64 billion in the preceding 2020 period, a pointer that customers are still struggling to keep up with premium payments.

The surrenders were largely in life assurance, pension and investment products, which are usually long-term.

The data means surrenders have now risen for the third year running. Nine-month surrenders to September 2019 were Sh6.42 billion compared to Sh1.31 billion in a similar period in 2018.

They were fueled by salary cuts and job losses that have punctuated corporate Kenya due to Covid-19 disruptions, claiming nearly 740,000 jobs in 2020.

Most of the insurance products are popular with salaried workers, meaning that disruptions such as job losses and wage cuts directly impacted the sustainability of insurance products.

The IRA data shows ICEA Lion Life, one of the leading insurers in long-term business, reported Sh6.83 billion surrenders followed by Old Mutual (Sh1.47 billion), Britam Life (1.36 billion) and Jubilee (Sh504.7 million).

The economic fallout forced people to cash out of some insurance products, while others tapped into policy loans to cushion themselves from economic hardships, according to ICEA Lion Life Assurance Chief Executive George Nyakundi.

“In the retirement benefits area, life insurance companies paid out huge amounts as surrenders due to closing of business to members of retirement benefits schemes,” he said.

“Those in occupational retirement schemes benefited in a way compared to those who did not belong to any scheme.”

Some insurers have been supporting customers through flexible repayment agreements to avert policy surrenders—many of which are at the expense of customers.

“We were very flexible with our customers on products such as life to accommodate (those) who were still distressed by Covid-19 disruptions so as to sustain the policy,” said Jubilee Insurance Regional Chief Executive Julius Kipng’etich.

Early surrenders do not give value for money since the products are structured to allow insurers to recover expenses incurred to sell the products early.

Many life products have a maturity period starting from three to five years, and many insurance firms recoup onboarding costs within the first few years.

This arrangement usually means that those exiting early are deducted costs such as commission paid to agents and also leave their future exposed.

Increased claims, surrenders, withdrawals, bonuses and annuities come as a strain on insurers’ liquidity.

For instance, in 2020, IRA data shows long-term insurance business claims and benefits increased by 22.2 per cent to Sh68.31 billion, partly on people tapping into their savings or pulling out of insurance.

Policy surrenders and withdrawals hit Sh20.61 billion compared to Sh9.24 billion in 2019, pointing to the impact of salary cuts and layoffs.

IRA says increased claims were also due to payments for death.