New Regulations Seen Hurting Micro-insurance
The recent changes requiring insurers to separate life from general business and new capital rules are likely to scuttle the growth of micro-insurance, players have said.
They said the implementation of these guidelines will affect the nascent sub-sector with the potential of locking out new players and low-income earners.
Similarly, the new capital requirement will raise the entry bar, locking out players who may be angling to enter the business through the segment.
“Micro-insurance is a low-premium high-volume business and it’s effective through bundling strategy which involves packaging life and general insurance to increase uptake,” said Mr Nelson Kuria, the managing director of CIC Insurance.
Whereas the Insurance Regulatory Authority (IRA) is said to be responsive to the emerging development, failure to provide legal backing leaves micro-insurance at the mercy of the regulator, which situation is not conducive for growth through innovation and research.
The implementation of the new requirements will curtail the ongoing drive to increase penetration, Mr Kuria said.
The bundling of products such as health, personal accident, and funeral cover is to encourage low-income earners and those in the informal sector to take up insurance.
Given that these products cut across the two main business lines of insurance, the new requirement will make it difficult to package micro-insurance.
According to the latest annual Association of Kenya Insurers (AKI) report penetration is low.
“The industry continues to experience various challenges, key among them the poor public perception, which has led to low penetration levels of 1.76 per cent and 0.87 per cent for non-life and life insurance,” says the report.
However, Mr Kuria reckons that there is a need to change the current law in the light of this development.
Such regulation will also cover capital requirements, the necessary solvency ratios and mode of regulation especially for non-insurance players such as MFIs, which also offer micro-insurance.
“Given that micro insurance is a new phenomenon, we need to have in place new regulatory requirement governing the sub-sector mirrored on the micro-finance concept,” said Mr Isaac Ng’aru, an insurance consultant.
In the changes is raising minimum capital to Sh300 million and Sh150 for general and life respectively.
Mr Kuria contends that whereas the new capital requirement will help in meeting claims, micro-insurance operates differently.
Mr Ng’aru says there is a need to review the micro-insurance rules given that non-insurance players are also the segment.
“Micro insurance operates on a different plane and involves various players such as MFIs, which requires a different set of regulations akin to the capital market regulations where players undertaking asset management are regulated by the Capital Markets Authority (CMA),” said Mr Ng’aru.
For firms offering micro insurance, strategic partnership is critical as it allows convergence for competitive advantage.
For instance, CIC Insurance which is pioneering micro-insurance offers Bima ya Jamii for an annual premium Sh3, 650 for medical, personal accident and funeral covers.
Wider reach
The medical cover which is offered in partnership with the National Hospital Insurance Fund (NHIF) allows beneficiaries to seek treatment in public and selected private hospitals.
According to Mr Kuria, the partnership with NHIF allows for cost containment “which is critical to effective service delivery.”
Other partners critical to increasing uptake of micro-insurance are cooperatives, churches, self help and social welfare groups.
The focus on these partnerships allows a wider reach that provides high volumes.
Author: Johnstone Ole Turana
Source: Business Daily (http://www.businessdailyafrica.com/New%20regulations%20seen%20hurting%20micro-insurance/-/539552/966568/-/fktp64/-/index.html)
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