Equity Bank's Model for Insurance Firms

By Julius Kariuki Nduati

There has been a lot of research and debate on the causes of low insurance penetration (ie the number of people with insurance cover within the population) in the Kenyan, and generally East African, market. Low disposable incomes resulting from slow economic growth, cultural inhibitions (harambees, support from family networks), poor product development and financial illiteracy among the public have all been widely cited for the industry's appallingly low performance.

Viewed against the realities of our current times of the explosion of information technology, economic uncertainties and unprecedented threats to personal safety, then indeed the story of insurance growth in Kenya is a sad irony. Kenya is a developing economy with a fast-growing industry, ever-increasing mechanisation, a rapid adoption of modern means of public transportation and lifestyle changes with devastating effects on health. These changes mean that individuals and communities are exposed to risks now more than ever. It then beggars belief that apart from group medical and accident insurance schemes, compulsory classes like motor vehicle Third Party cover and other policies required by contractual engagements, Kenyans, in their tens of millions, are totally uninsured.

But more important is the question of what is required of the industry to reverse this sad state of affairs. The insurance industry here means insurers, intermediaries, the regulator (Insurance Regulatory Authority) and the insuring public. Granted, the uptake of particular classes has been improving - for example medical insurance. However, from an industry perspective this growth is only marginal. So what future does the insurance business have in Kenya?

Important parallels can be drawn from the story of Equity Bank and the change of fortunes in the banking sector in the last decade. Before Equity Bank was licensed to operate as a fully fledged bank in 2004, there were less than a million bank accounts. Most of the account holders were middle class white-collar workers, who essentially used their bank accounts as 'pay-points' through which their salaries went before getting into their pockets. Tens of banks would compete for their business. Some economic analysts even argued that the local banking sector was experiencing 'perfect competition' not unlike the kind evinced in the economic theory of perfect markets.

Then came Equity Bank and banking in Kenya changed forever. From 2004 to date, the majority of adults from all socioeconomic classes have bank accounts, half of them with Equity Bank. What changed when Equity entered the banking market? Basically, the bank reached out to its core customers: tea and coffee small-holder farmers. These were peasants who had not only been neglected but were also unwanted by the mainstream banks. Equity simplified account opening procedures, tailored products unique to these clients and evolved these products with changing customer needs. For example, only high-value clients would be allowed to operate small overdrafts in the mainstream banks. Equity, in contrast, allowed even sweepers and labourers to operate overdrafts proportionate to their incomes. Together with products like microloans, the bank became very popular, and more important, the public started regarding banking as a necessity.

Equity fundamentally changed the model of banking in Kenya, especially the public's perception of banks and the role of banks in their lives. It made banking a necessity, and not a just commodity or service to be bought. This is precisely what the doctor ordered for the insurance sector. Changing not only the perception of the insuring public with regard to the whole business of insurance, but also making, in reality, the service a necessity. The insurance business must be carried out in a way that highlights the importance and necessity of insuring one's health, life, property and prized possessions.

This calls for a revolution in the packaging and marketing of insurance services, for therein lies the remedy to its stunted growth. A massive and intensive campaign to educate the nation on the same would be of great help. A national debate through public media would also go a long way. The cardinal message should be that insurance is not for the rich and neither is it a luxury. That disasters and calamities leave the poor worse off than the rich and the middle-class. That livelihoods need not be lost because of fires, illness, floods, droughts and other perils. This would be key to brightening up the prospects of this vital financial sub-sector.

Julius Kariuki Nduati is a licensed insurance agent with AAR Kenya Insurance. The views expressed are his own.