Risk Management Practices: A Survey of Micro-Insurance Service Providers in Kenya

Abstract

In the recent past, concerted efforts have been made to encourage financial service access to the poor starting with microfinance and subsequently micro-insurance. With complexity of insurance and the vulnerability of the target market, there are inherent risks that insurance companies face in serving the low-end market. This study documents these risks, discusses the strategies that Kenyan insurance companies are using to mitigate the risks and discerns creative strategies to minimize them. Purposive sampling was used to select 8 companies that offer micro-insurance products in Kenya, from which 49 key informants responded to the survey. Visual binning approach was used to describe the data, while statistical tests of correlation and association were carried out by use of Pearson Correlations and Chi-Square tests. The study singled out the most ubiquitous risks facing micro-insurance providers as; diseconomies of scale resulting from low penetration, limited distribution channels, correlation risks and rigid regulatory framework. The strategies being used to counter the risks include; use of technology to lower administration costs, control of moral hazard and adverse selection, thorough scrutiny of claims, development of risk measurement models and continuous monitoring of the clients. Micro-insurance service providers are advised to invest in research and actuarial services to improve pricing of the products, develop innovative distribution channels, adopt technology conscious partnerships and devise flexible premium payment terms to enhance control of micro-insurance risks. The industry regulator (Insurance Regulatory Authority) is further advised to ensure that micro-insurance policies are drafted in simple language understandable by the clients

Prospects for Partner-Agent Model Practice to Enhance Microinsurance Appropriateness in Tanzania

“…The dependent and independent variables were measured on a 5-point Likert Scale: 1= "Not at all", 2 = "to a small extent", 3 = "to a moderate extent", 4 = to a great extent, and 5= "To a very great extent" where respondents were requested to rate, in their opinion, the extent of PAM practice and microinsurance appropriateness in Tanzania based on the 5-point Likert scales above. This measurement approach was previously used by several scholars including Bergam et al (2014); Min and Mentzer (2007), and Njuguna and Arunga (2013), to evaluate the clientvalue of microinsurance products.…”

Factors Influencing Demand for Micro Insurance Services in the Insurance Industry in Kenya

“…Comparing the household readiness to pay with the anticipated guarantee and insurance conveyance costs, Akter et al, (2011), showed that a standalone crop insurance scheme is likely to suffer 25% to 50% loss each year. Njuguna and Arunga (2012), finds that pricing represents significant challenges due to need to balance prices, cost, sustainability and accessibility. Regardless of whether the household has the capacity and is willing to purchase insurance depends on the level of utility expected with insurance against the utility expected without insurance (Kirigia et al, 2005).…”

The Determinants of Demand for Micro Insurance Services in Kenya

“…Onduso (2014) conducted a research on factors influencing penetration of micro insurance in Kenya and established that low income, poor distribution channels and lack of sufficient education affected the uptake of insurance service and products. Njuguna and Arunga (2012) examined the risk management practices by service providers of micro-insurance. Njihia (2013) undertook a study on challenges of market penetration of general insurance firms in Kenya.…”