In 2004, the Central Bank of Kenya took a significant step by granting the first commercial bank the authority to operate a bancassurance business. This landmark decision paved the way for nearly 30 banks and microfinance institutions to establish bancassurance services through specialised agencies and subsidiaries. The emergence of bancassurance has proven to be a critical factor in increasing insurance penetration in Kenya, a sector that has traditionally struggled to reach a broad audience.
As reported by the Insurance Regulatory Authority (IRA), the insurance penetration rate in Kenya remains below three per cent, which is characteristic of challenges faced in many African markets. According to the 2023 economic survey conducted by the Kenya National Bureau of Statistics, the current insurance penetration in the country stands at 2.3 per cent. This statistic indicates a pressing need for innovative strategies to enhance growth within this sector. Comparatively, South Africa stands out by accounting for approximately 74 per cent of all African insurance premiums, whereas the other 53 African countries collectively account for a mere 0.4 per cent of the global insurance market.
Globally, Europe is recognised for having one of the most advanced insurance markets, with the early adoption of bancassurance being a crucial driver of its high insurance penetration, which averages around 40 per cent across various European nations.
In Kenya, the banking sector has a wide-reaching distribution network, comprising more than 40 licensed commercial banks with over 1,500 branches located throughout the country.
Additionally, the availability of services through agency banking and digital platforms significantly enhances accessibility for customers.
Emergence of bancassurance
The bancassurance model offers a unique opportunity for insurance companies to engage with a large and diverse customer base, thereby facilitating increased penetration.
Under this model, customers benefit from the convenience of accessing insurance products alongside a comprehensive range of financial services, including savings accounts, loans, and foreign exchange.
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This integrated approach not only streamlines the customer experience but also enables financial institutions to offer competitive pricing, making these essential products more affordable and attractive to a broader audience.
Moreover, the bundling of various insurance solutions, such as general, health, and life insurance, further supports customer needs by providing access to comprehensive coverage options tailored to their specific circumstances. This holistic approach can significantly enhance customer satisfaction and loyalty, as clients appreciate the convenience of obtaining multiple services from a single provider.
Addressing needs of clients
The advantages of the model are especially pronounced when addressing the needs of business clients. For instance, the year 2024 was particularly challenging for many enterprises in Kenya due to the severe flooding and social unrest, resulting in extended operational disruptions and substantial financial losses.
Many small businesses faced daunting obstacles, such as the inability to pay employees and cover repair costs due to suppressed spending power.
To address these challenges, the collaboration between banks and insurance companies can lead to the development of customised insurance solutions that cater specifically to the unique risks encountered by small and medium-sized enterprises (SMEs).
By leveraging their combined resources and expertise, banks and insurers continue to create bespoke policies designed to provide adequate coverage at more accessible price points, thereby promoting business resilience and facilitating growth.
Case Study
A notable example of this approach is “Linda Biz,” a recent Absa Bank Kenya’s initiative in partnership with Old Mutual Kenya. This innovative solution aims to empower SMEs by providing them with comprehensive insurance coverage alongside opportunities for savings and financial planning. The introduction of such tailored solutions not only addresses the specific risks faced by small businesses but also fosters a supportive environment for entrepreneurship, particularly among startups.
It is equally important to encompass employee protection within insurance offerings. Insurance plans that provide coverage for critical illnesses, personal accidents, and cash payouts to alleviate business interruptions can greatly enhance the overall security of business operations.
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For instance, keyman insurance is particularly vital for businesses that rely on individuals with specialised skills or leadership roles. This type of coverage protects against the financial ramifications of losing key personnel, ensuring that businesses can maintain stability and continuity during transitional periods.
Furthermore, bancassurance serves as a valuable platform for promoting financial literacy among customers. By capitalising on their unique strengths and capabilities, banks and insurers can engage a broader market audience, thereby enhancing overall financial inclusion.
The extensive branch networks of banks provide not only access to diverse products but also essential educational resources that help customers navigate the complexities of financial management.
In the long-term
In conclusion, the collaborative relationship between banks and insurance companies plays a fundamental role in mitigating financial risks for both individuals and businesses.
By focusing on the simplification of insurance products, integrating innovative solutions, and implementing comprehensive marketing strategies, the bancassurance model can significantly increase the uptake of insurance offerings and improve insurance penetration rates.
Ultimately, these efforts will contribute to the development of a more stable and resilient financial landscape in Kenya, fostering economic growth and sustainability for all stakeholders involved
This article was written by Julia Shisia is Head of Bancassurance – Absa Bank Kenya PLC
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