Factors Affecting Micro Insurance Penetration in Kenya

A Research Project Report Submitted to the School of Business in Partial Fulfillment of the Requirement for the Degree of Masters in Business Administration (MBA)The general objective of this study was to determine the factors that affect Microinsurance penetration in Kenya. The study was guided by the following research questions: What factors contribute to low Microinsurance penetration in Kenya? What is the role of Microinsurance? Is there necessity for microinsurance regulatory framework? What strategies are being employed by microinsurance providers to increase penetration? This study adopted the descriptive research design since it allows use of the study findings as a general reflection of the larger population. The population of the study was the 55 registered insurance companies in Kenya out of which a sample size of 32 insurance companies was drawn. From the population sample 45 respondents comprising senior and mid-level managers in charge Microinsurance or business development were targeted achieving a response rate of 76%. Survey questionnaires were used to collect the data, both qualitative as well as quantitative. The questionnaires were semi structured, with both open and closed ended questions to allow collection of both qualitative and quantitative data. The cross sectional data collected from the questionnaires was edited, coded, processed and analyzed using excel and statistical package for social science computer programs (SPSS). The study also reviewed secondary data mainly from the Association of Kenya Insurers and the Insurance Regulatory Authority to supplement the arguments drawn from the primary data. The findings are presented using tables and charts including the reports of the inferential statistics showing the regression and coefficient correlations analysis to test the association between the factors. A comparison was made with the existing literature in order to establish areas of agreement and disagreements. The study established that the factors inhibiting the growth of Microinsurance include lack or inadequate research which lead to development of products that do not meet customer needs, uncompetitive pricing and inadequate distribution channels which limit the reach and low levels of publicity. Other causes external to insurance companies include low donor and government support in Microinsurance programs, lack of supportive Microinsurance legal framework, low income levels which relegate insurance to secondary needs, religious or cultural factors that are hostile towards insurance and low public trust of insurance companies. The study also established that the roles of Microinsurance such as alleviation financial burden on the poor in the event of disasters, protection of the wealth and health of the poor, poverty alleviation and increasing utilization of health facilities. Concerning law and regulations, the study findings showed that the existing legal framework is not conducive for Microinsurance growth and that new policy changes are needed to spur Microinsurance development. In terms of the strategies that are used the study established that unlike conventional insurance, Microinsurance is a mass market product that requires use of aggregators hence the need to enlist partners and strategic institutions like banks and microfinance in the sales strategy. Additional strategies to be deployed include product innovation, usage of efficient service delivery channels and simplification of the documentation, products and processes in order to build trust with the public. In conclusion, the study identified that a number of factors both internal and external to the insurance companies contribute to low Microinsurance penetration. These include lack of adequate research to develop products that match customer needs, pricing, income levels, distribution channels, publicity and cultural factors. From the findings it was noted that Microinsurance plays vital role in the society and more so to the low income segment. With regards to regulations, it was observed that the current regulatory framework inhibits growth of Microinsurance while on strategies, most of the companies are deploying similar strategies for conventional insurance to Microinsurance hence the slow growth. The study recommends that insurance companies should develop specific strategies for Microinsurance business outside conventional insurance due to difference in business models, that a new regulations be put in place to address the unique needs of Microinsurance and that the insurance companies, governments and donors should collaborate to deepen the growth and development of Microinsurance in Kenya. Further studies should be done based on views from outsiders such as customers, insurance agents and brokers to get a wholesome picture on impediments to Microinsurance growth. Related to this is need for further research study on persistency problem where high lapse rate of policies contribute to stagnation