Insurance policy cancellations soar to Sh10b as tough times bite

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Julius Kipng’etich, CEO of Jubilee Insurance, addresses a rally at the Aga Khan University Hospital in Nairobi on May 8, 2019 [Denish Ochieng, Standard]

Insurance payments to customers dropping out of policies reached 10.45 billion shillings in the nine months to September last year due to the coronavirus-induced economic hardship.

The latest data from the Insurance Regulatory Authority (IRA) shows that the value of policy surrenders fell by 7.64 billion shillings in the previous period of 2020, indicating that customers are still struggling to keep pace with premium payments.

Redemptions were mainly in life insurance, retirement and investment products, which are generally long-term.

The data means redemptions have now increased for the third year in a row. Redemptions over the nine months to September 2019 amounted to 6.42 billion shillings, compared to 1.31 billion shillings for a similar period in 2018.

They have been fueled by the pay cuts and job losses that have punctuated Kenyan businesses due to Covid-19 disruptions, claiming nearly 740,000 jobs in 2020.

Most insurance products are popular with salaried workers, which means that disruptions such as job losses and pay cuts have had a direct impact on the sustainability of insurance products.

IRA data shows that ICEA Lion Life, one of the leading insurers in long-term business, reported redemptions of Sh6.83 billion, followed by Old Mutual (Sh1.47 billion), Britam Life (1.36 billion) and Jubilee (504.7 million shillings). .

The economic fallout has forced people to withdraw money from some insurance products, while others have resorted to policy loans to protect themselves from economic hardship, according to George Nyakundi, chief executive of ICEA Lion. Life Assurance.

“In the area of ​​pension benefits, life insurance companies have paid out huge sums in the form of buyouts due to business closures to pension plan members,” he said.

“Those who had an occupational pension scheme benefited somewhat compared to those who did not belong to any scheme.”

Some insurers are supporting their customers with flexible reimbursement arrangements to avoid policy surrenders, many of which are at customer expense.

“We have been very flexible with our customers on products such as life to accommodate (those) who were still distressed by the disruptions of Covid-19 in order to maintain the policy,” said Julius Kipng’etich, regional general manager. of Jubilee Insurance.

Early redemptions don’t get their money’s worth because the products are structured to allow insurers to recoup the expense incurred to sell the products early.

Many life insurance products have a term period ranging from three to five years, and many insurance companies recoup the onboarding fee in the early years.

This arrangement usually means that those who leave early are deducted from costs such as commission paid to agents and also leave their future exposed.

The increase in claims, surrenders, withdrawals, premiums and annuities is weighing on insurers’ liquidity.

For example, in 2020, IRA data shows long-term insurance business claims and benefits increased by 22.2% to Sh68.31 billion, in part thanks to people taking into their savings or withdraw from the insurance.

Surrenders and policy withdrawals reached 20.61 billion shillings from 9.24 billion shillings in 2019, highlighting the impact of pay cuts and layoffs.

The IRA says the increase in claims was also due to payments in the event of death.


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