How insurtechs are ripping up the insurance playbook

Chief Executive Officer of the Insurance Regulatory Authority Godfrey Kiptum. FILE PHOTO | DENNIS ONSONGO | NMG

Insurance is sold, not bought. That has for decades been accepted as the truth in the industry.

Insurtechs are, however, ripping up the insurance playbook at a pace that could make the opposite a reality.

Kenya’s insurance penetration remains below three percent, compared with the world’s average of seven percent, with traditional underwriters facing accusations of not putting the right products in front of the right customers at the appropriate prices.

This is even as they grapple with fraud, price undercutting and high distribution costs.

But the rising wave of insurtech— innovative use of technology in insurance packaging— is fast helping in providing solution-based products that are fast tapping into the increasing demand for hyper-personalised insurance products that resonate with customers’ own needs and risk profile. Many conventional insurance products had for years erected silent entry barriers for people with low and irregular income. But this is the group that insuretchs are increasingly attracting now, raising hopes of growing penetration.

James Mburu Wainaina, a bodaboda rider and a father of two school-going children, is one such customer who initially never thought could afford any insurance cover.

But thanks to MotiSure, an insurtech that offers insurance for riders for as little as Sh30 a day, Mr Wainaina’s worry about accidents and the resultant impact such as medical bills, motorbike repairs and loss of income are now in the hands of the insurer.

MotiSure refined its insurance which allows insurance startups to experiment and deploy innovative solutions to the market.

“If I want to cater for my family, then it must be my full strength. The cover gives me enough confidence to cater for my family,” says Wainaina.

Official data from Kenya Police shows 4,976 motorcyclists died in five years to 2022 while 11,187 were injured during this period—being statistics that linger in the minds of many bodaboda riders like Wainaina each day they are on the road.

Read: How tech is disrupting Kenya’s insurance sector

Insurtech’s micro-insurance products have presented a chance for the insurance industry to resonate with the low-income earners, mostly working in the informal sector as traditional risk mitigation measures such as social networks prove inadequate.

The less expensive premiums, simplified language in the contracts, flexible payment terms that are usually based on a customer’s cash flow and the shortened process of settling claims are some of the features that insurtechs are using to redefine the insurance playbook.

Health, personal accident and last expense are the most popular micro-insurance products being demanded, according to the latest study by the Association of Kenya Insurers. Other products that are seeing increased interest include crop and livestock insurance especially as the frequency and severity of incidences such as drought and floods rise.

Britam, which has been providing health micro-insurance to vulnerable groups such as small-scale tea farmers, last year also partnered with global reinsurer, Swiss Re, to launch a flood insurance solution to cushion small-scale farmers in Kenya against catastrophic floods.

The flood insurance solution was developed using data modelling and satellite imagery to predetermine flood thresholds and provide coverage at an affordable cost.

The solution resonates with thousands of households who have witnessed the destruction of crops and livestock in addition to injury and loss of lives due to floods.

The innovative product which was jointly designed by AB Consultants— an independent market driver in the inclusive insurance space—, uses water level data to determine historical patterns of flooding along the Tana River and then relies on this data to determine the likelihood of floods.

“This solution is especially valuable for those who live in areas with a high risk of flooding but may not have access to conventional home insurance due to factors such as location or cost. This provides a more accessible and affordable option for such households,” said Barbara Chesire, the managing director at AB Consultants.

Regional re-insurer, ZEP-RE, is also currently implementing De-Risking, Inclusion and Value Enhancement of Pastoral Economies (Drive) that covers Kenya, Ethiopia, Somalia and Djibouti.

Planet Lab, the largest Earth observation fleet of imaging satellites, helps Zep-Re to remotely monitor the conditions of pasture on the ground and trigger insurance payouts when the level of pasture falls below a certain level.

PHOTO | SHUTTERSTOCK

The near real-time satellite images ensure payouts are made at the onset of a drought, much faster than humanitarian assistance, allowing pastoralists to buy fodder, water, and medicines to keep their core breeding stock alive during droughts.

Over 73,000 pastoralists in Kenya had by April last year signed up within three months of launch, showing that technology is now making insurance resonate with groups of people once thought as un-insurable.

Also read: mTek in deal to offer affordable health insurance

At the heart of this increased uptake has been the use of technology in designing, distributing and paying claims, thereby cutting the high distribution costs that have been a big barrier for many conventional insurers who would have wanted to reach far-flung areas with sparse populations.

Insurance Regulatory Authority (IRA) commissioner Godfrey Kiptum has been supporting insurtechs by creating an enabling environment to support insurance distribution through technology.

“The protection gap is very huge. With these insurtechs, we expect that distribution will be eased and we will be able to distribute to many more people, especially in agriculture and health,” says Mr Kiptum.

IRA regulations capped premiums for micro-insurance products at a maximum of Sh40 per day and the sum assured at a maximum of Sh500,000, offering a launch pad for many insurtechs to partner with insurers in remodelling insurance products.

The microinsurance distribution space is evolving as players appreciate the benefits that can be derived from the use of technology. This has seen emerging partnerships such as between mobile network operators and fintechs.

For instance, Safaricom has been piloting Bima, an insurance product that will provide cover against theft, property damage and loss of life, and hopes to formally launch it this year.

Oye, a fintech company that provides insurance and other financial benefits backed by purchases made by commercial two-wheeler riders, is also among the many players who have used technology to take insurance to the informal sector.

The embedded insurance model allows bodaboda riders who fuel at select petrol stations including TotalEnergies and Galana Oil, to get free personal accident cover. While the cover motivates the riders to fuel at given petrol stations and drive up fuel sales for the stations, the riders benefit by getting the insurance cover.

“Embedded insurance motivates you to take the insurance. For our product, if you fuel at a select number of stations and get to 45 litres, it converts into a free personal accident cover with four benefits. That causes a mindset shift about insurance and this eventually motivates them to buy other insurance products for their families,” says Kevin Mutiso, the founder and CEO of Oye.

The Oye accident cover gives the riders a Sh10,000 refund on outpatient medical services expenses, Sh5,000 two nights payment for inpatient services, Sh1,250, weekly income replacement for up to eight week in cases of temporary disability and Sh25,000 for permanent disability or as last expense in case of death.

Mr Mutiso believes insurtech will be able to take micro-insurance products across the country and change the landscape of insurance from the current status where 84.5 percent of the industry’s total gross direct premiums are concentrated in Nairobi County, according to the IRA data for 2022.

Elias Omondi, the principal, innovation for resilience at FSD Africa says insurtech is going to be the only sure way of closing the protection gap in Africa’s countries such as Kenya by riding on its young population.

“If you look at the traditional insurance products, they sometimes do not meet the needs of our customers. And what the innovators at Bimalab have been doing is to ensure these products start to meet these needs,” said Mr Omondi during the inaugural Bimalab Africa insurtech summit in Nairobi.

Also read: Future of insurance: Why Africa millennials matter

Partnerships between insurtechs and established insurance have also been tipped to speed up the rollout of products that resonate with low-income earners—many that had been excluded by conventional products.

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