Growing Defaults on Premiums
Recent economic challenges that were witnessed in 2024 saw a number of insurance customers defaulting in premium payments, with most customers having since dropped insurance policies. This has left a number of Kenyans exposed to such risks as accidents, illnesses, and theft.
Results from the 2024 FinAccess Household Survey by the Central Bank of Kenya, Kenya National Bureau of Statistics, and Financial Sector Deepening Kenya showed that 44.1 percent of holders reported their insurance claims being denied because the premium payments had lapsed.
Economic troubles were at the root.
Many of the cases reported to have missed payments had been linked to financial hardships that affected several households here in Kenya. Decreased disposable incomes and lack of information concerning the implications of default coupled with cases of 45.5 % men and 42% women with postponed premiums reasoned for invalidation of the claims.
In addition, the number of people holding insurance policies in Kenya reduced by about 130,000 compared to three years earlier, trimming the number of policyholders down to 1.77 million, hence widening protection in a country where 70.5% of households lack any form of insurance.
The Role of Government Deductions
Government-enforced deductions further squeezed disposable incomes. In 2024, workers paid a 2.75% levy on gross pay for social health programs, while contributions to the National Social Security Fund were doubled. A 1.5% housing levy was introduced in 2023.
These deductions left households with little money to spend on basic needs like rent, food, and education, making it even more difficult to pay for insurance coverage. Moreover, with inflation always one step ahead of wage increases, many people simply could not afford to continue paying premiums.
Savings and Investment on the Decline
Insurance was also not left out in the economic strain. Households saving decreased, with the number of savers decreased from 74% in 2021 to 68.1% in the year 2024. The reasons forced not to save include financial constraints at 90.5%, while the loss of income was mentioned by 18.2%. In contrast, credit usage increased from 60.8% to 64% due to households increasingly employing debt to make ends meet. The usage of pension products went down while the number of those opting out increased from 4.6% in 2021 to 8.6% in 2024 - this is highly driven by job losses and a reduction in disposable income.
The penetration of insurance currently stands at 2.39%. Economic hardships reduced income that would have sustained financial safety nets for most households. The challenge going forward will be how insurers can adapt and find ways of continuing to assist customers through tough economic times while their operations are kept at a sustainable level. As such, the policymakers' forward task will be to ensure that essential social programs and deductions will not inadvertently weaken the financial resilience across Kenyan households.