DAILY NATION Tuesday June 23,2009

First Assurance has expanded its product offering to also include policies for small firms

BY LUKE MULUNDA

When it comes to insurance, Kenyans are a picky lot. They frown upon the slightest whiff of risk, insurance service providers say, and are finding the one-stop shop concept addictive. To keep up with this fickle market, insurers are innovating and introducing new products.

So when two years ago First Assurance introduced a medical cover and policies for small and medium-size enterprises, it was responding to a market need and powering the quest to grow revenues in a highly competitive market where penetration

remains a tiny fraction of the population. The medical cover targets people in both formal and informal employment as well as retirees.

“Medical insurance is a large market,” says Mr Stephen Githiga, the managing director of First Assurance. “Many people in informal employment and rural areas are not aware

of such covers and present huge potential.” Most insurance companies in Kenya shun ageing people because of their frail health and other vulnerabilities that make them a high-risk bet. But Mr Githiga says First Assurance initially partnered with the Kenya Hospital Association, where it insured its members, both young and old, “to even out the age.”  With a limit of Sh100,000 for outpatient and Sh2.5 million for inpatient,

he says the product has also attracted a good number of former MPs and their spouses. “It covers pre-existing conditions, but of course within certain limits and has HIV/Aids as an extended benefit,” he says. To deliver specialised treatment under this cover, it has partnered with hospitals in South Africa and India. Mr Githiga notes that as SMEs have grown over the years, and so have their risks, such as exposure to fire, misappropriation of stock and money by employees, among others.

 He says uptake of the two products has been good, contributing to the company’s over 30 per cent annual growth in the last three years, which peaked with Sh1.4 billion in premiums last year and a profit of Sh150 million, according its annual report. In a market where success is traditionally measured by the size of premiums, this has thrust First Assurance in the top 10 though about 50 per cent of the insurance business is controlled by six or so layers. First Assurance, whose core business is general insurance, started off in Kenya in 1930 as Prudential Assurance Company, a subsidiary of the UK-based insurance bellwether, focusing mainly on life assurance. But a tax change on retirement annuity contracts that reduced savings for businesses in the 1970’s forced many composite underwriters, including Prudential, to drop life.

 In 1980 Prudential Plc exited the market, leaving Prudential Assurance Company of Kenya, which a decade later rebranded to First Assurance. Even so Mr Githiga notes that there has been an improvement in terms of premiums and profits in insurance, but these pale in comparison with other financial sectors like banks with double-digit growth.

“Insurance has not been able to penetrate all potential customers,” he said in an interview. “And high

claims and fraud have squeezed insurers, especially in PSV.” Rising claims have been a major concern,

complicated by conniving lawyers out to rip off underwriters. United Insurance went under a few years ago, followed later by distress calls at Invesco and Standard Assurance. Other PSV insurers are said to be  hanging on a loose thread.

“This kind of business needs very good investment opportunities which are limited in Kenya to stocks, deposits, treasury bills and bonds,” Mr Githiga says. “The current meltdown in equities has eroded earnings.” With such stark options, insurers are trying out would have sounded weird a decade ago, such as crop insurance, where they cover risks like drought, floods and crop failure. Kenya, like many sub-Saharan

countries lags behind in insurance, which is a major driver of savings in major economies. This has not been made any better with an oversupply of insurance companies, where 45 players vie for a stubbornly stagnant market of less than three million compared to banks with over 6 million accountholders. But the government hopes to correct this through a requirement issued last year for insurance firms to increase their minimum share capital to Sh300 million for general and Sh150 million for life from Sh150 million and Sh50 million by next year.

“This will force consolidation that will result in stronger and competitive insurers that can take more risks

and service claims,” said Mr Githiga. “This worked for Nigeria where insurers reduced by almost half. It will lead to better security for the insureds and prudent underwriting.”