Big moves could help insurers navigate the crisis and thrive in the long term.
The COVID-19 pandemic and its resulting economic crisis have hit the insurance industry in Kenya hard. Macroeconomic conditions in the region are likely to remain tough for the next few years, while changing customer needs and behaviours are disrupting traditional business models and pushing companies to accelerate digitization.
As cash-strapped customers cancel insurance policies or fail to renew them, the drop in new business and retention is leading to lost revenue and shrinking customer numbers, as well as an underinsured population, which is at risk should the worst happen. Many insurers will remember this situation from the 2008–09 global financial crisis. The current recession is expected to have a deeper and longer impact.
And the pandemic has added a layer of complexity, too, in that physical distancing required businesses to transition, almost overnight, to remote setups.
While the pandemic is outside the realm of control for insurers, the best course of action for companies may be to focus their efforts inward on a “survive and then thrive” strategy. Many already have initiatives in place to facilitate end-to-end digitization, improve operational efficiency, bolster cybersecurity defences, and enhance the customer experience. Now they need to accelerate implementation and track results systematically to ensure that business value is captured from those projects.
The medium- to long-term prospects for the insurance sector as a whole will be shaped by underlying trends that have been accelerated in recent months. Our analysis of Kenya’s financial decision makers, reveals a sharp shift in consumer attitudes and behavior with a larger percentage of respondents expect to engage in fewer physical in-branch or face-to-face interactions, and the other percentage expect to make greater use of mobile and online channels, even after the crisis.
As consumer doubts regarding digital channels are dismantled, new habits and expectations are being formed. Customers are becoming more comfortable managing their finances remotely and online, undermining the traditional intermediary business model. Intermediaries are still responsible for most insurance distribution across all segments and are already having to spend almost double the amount of time closing sales and servicing clients.
In the life-insurance segment particularly, dampened demand means referrals are down and intermediaries can’t prospect new clients as easily. Videoconferencing tools don’t allow for the same relationship building as face-to-face interactions do, and brokers and agents are adjusting to new digital tools and online sales brochures. Brokers, who are typically older and operate independently, are often ill equipped to make this transition to new ways of working, and industry bodies have been exploring ways to help ensure broker viability, including by offering financial support.
