What role can financial lines insurance play in addressing Kenya’s economic challenges

In recent years, we have seen the Kenyan economy face some serious challenges, most notably high inflation, growing cost of living pressures, and high public debt all compounded by global economic uncertainty. The recent Old Mutual Financial Services Monitor (OMFSM) revealed that financial strain on Kenyan households has continued into 2024. The average saving rate in Kenya stands at 12%, far lower than Africa’s average of 17%, with 59% of household income allocated to living expenses, compared to the continent’s average of 51%. Further, only one in ten Kenyan consumers are earning more now than they did prior to the COVID-19 pandemic.

As a result, when it comes to the insurance sector, with growing financial challenges for consumers, it is perhaps unsurprising that insurance penetration rates in Kenya remain low at around 2-2.5%, whilst the global average is around 7%.

Despite this, the insurance sector can play a pivotal role in Kenya’s economic recovery. In particular, financial lines insurance can provide the stability that businesses desire, developing economic resilience across numerous sectors.

Financial lines insurance protects businesses from financial losses. This includes covering the costs of legal action being taken against a business by third parties, cyber-attacks and commercial crime such as fraud.

By transferring these types of risks to insurers, Kenyan businesses can allocate their resources more efficiently, knowing that they are protected from potentially severe financial losses. This stability enables them to focus on their core aims such as creating employment opportunities or investing in growth. Start-ups, in particular, benefit from financial lines insurance coverage as it protects their founders from personal liability in the event of legal or business disputes. It enhances investor confidence in the business by providing reassurance that investments are protected against unforeseen risks, meaning they are more inclined to allocate capital to these firms.

As Kenya’s economy becomes increasingly digitised, cybersecurity threats also pose significant challenges to businesses, individuals and the Government. Last year’s July cyber-attacks on government online services and other platforms including e-Citizen, Kenya Power and Kenya Railways demonstrated the severe impact these cyber-attacks can have. Financial lines insurance products can help mitigate the impact of these breaches by providing coverage for expenses related to legal liabilities, regulatory fines and data recovery.

In order to ensure that these products play a role in providing stability to Kenyan businesses and the economy in 2024, awareness among Kenyan companies of these solutions must be maximised. The Insurance Regulatory Authority (IRA) is focusing on raising awareness of the products that financial lines insurance brokers can offer. Through consumer education programmes, newspaper articles and infomercials, the organisation has sought to make the public aware of the importance of financial insurance products and the reasons why insurance cover is needed.

The strength of the sector will also rely on the use of technology. The rise of insurtech firms in recent years has allowed insurance brokers in the sector to serve their customers far more effectively. The IRA, for example, has launched BimaLab, an accelerator programme to support insurtechs by accelerating the lifecyle of innovative startups, reducing years’ worth of learning into a few months. The most recent BimaLab Africa Insurtech Summit, held in Nairobi, brought together industry experts from the reinsurance and insurance and technology sectors to drive advancement of insurance technology. Programmes and events such as these have helped integrate cutting-edge technologies into the Kenyan insurance sector. This has helped support the use of AI in the insurance industry in Kenya, allowing insurers to analyse vast amounts of data and make data-driven decisions in real time.

We can see this across multiple lines in the insurance sector. For example, the Kenya-based insurtech firm, Pula, has been effective in using advanced technologies such as satellite data to help farmers across Kenya manage climate risk and improve farming methods, impacting over 15 million farmers across 13 African markets. Moreover, Kenya’s Lami Technologies, is another insurtech firm that received US$1.8 million pre-seed investment to improve its technology and increase its impact across Kenya.

With the Kenyan economy set to experience further challenges this year, the insurance sector, particularly financial lines, can contribute to providing stability in the face of these challenges for businesses across numerous industries.

You can read the original article on the Business Daily Africa website