I have been experiencing an unquenchable thirst to try to answer this nagging question about whether insurance is a necessity in our country today. While the subject of insurance is vast and multifaceted, I will try to break down the perception of this subject so that our minds are not for a moment engrossed with the surreptitious image of insurance agents incessantly cold calling potential clients or pursuing claims arising from insurable risks by claimants.
Data from the Insurance Regulatory Authority (IRA) shows that the level of insurance take-up in Kenya is at an all-time low of 3.3 per cent. This cannot be compared to developed economies such as South Africa, where the figures are 14%. Many explanations have been put forward to show why Kenyans remain reluctant to purchase insurance-related products. One prominent argument is that the per capita income (GDP) of the average earner cannot be sufficient to support premium payments. The other school of thought is that Kenyans’ savings culture is still lacking.
While the above arguments may be valid, the fundamental understanding of insurance has not been taught to most of us from a young age. The subject of insurance, I dare say, is still shrouded in great secrecy and misunderstanding similar to the mysticism that surrounds ancient religions. The language used is still quite technical for the average person. I realize that at this point I must quickly correct myself and note that each profession has its language; Well, an engineer has to use the language of engineering, an architect the same, and so on. Insurance also has its language, but if its defenders profess that it benefits almost all of humanity, shouldn’t it be clothed in a language that is not so grandiloquent but is easily digestible for the common man?
The responsibility of stakeholders in the insurance industry is to convey customers’ perceptions of how insurance works in a language they can understand. This would involve offering a basic insight into what informs underwriting decisions for various insurance products by insurers. I want to suggest that it would benefit insurers to have open days where they invite people and educate them on the basics of insurance, on the meaning of risk, why insurance is important to any economy, and most importantly, the benefits of insurance on a personal level. In addition to honing their sales skills, sales professionals must properly align with the market in order to understand and respond well to their customers’ needs. More often than not, salespeople are perceived as pushy, overachieving individuals who are not honest and are quick to point customers to the dotted lines on the application document. This negative perception must stop. Insurance vendors contribute enormously to overall economic growth and offer important services without which an economy could not function well.
Now back to our general topic. Every society is fraught with risk. The risk of death from accidents, accidental injuries resulting in permanent or temporary disability, the risk of fire caused by natural or man-made sources, for example, lightning, underground fires, etc., the risk of accidental injuries in the workplace due to the nature of employment, lost luggage during travel and many more. What insurance does is simply classify the aforementioned risks and quote them in premiums. The premiums are then pooled and it is from this pool of funds that the claims are settled. The guiding principle here is that a risk must be quantifiable. A detailed analysis of your immediate environment will reveal many known and unknown risks. Insurance companies manage losses arising from insured risks. Think for a moment about the expenses borne by the insured if there were no insurance to mitigate these risks. Imagine that the owner of a gas station is liable for damages caused to his neighbors by a fire started by his gas station. If the owner does not have liability insurance, it may be difficult for you to raise money to cover legal fees from him, and therefore he may not protect your business. This is because the cost of a claim can far exceed what a business can collect and require the full closure of a business. Many examples abound where insurance solves practical problems and mitigates a range of risks that can cripple businesses and slow economic growth. On a personal level, health insurance is very vital. Think for a moment about the rising cost of Medicare and consulting fees, not to mention the rising costs of pharmaceutical drugs.
But there is an antithesis to such a salutary explanation, and some who argue that the risks are just imagined dangers. They postulate that a risk is imagined and only ceases to be when a real occurrence occurs. Some even oppose a proposal to take out insurance in a dangerous way arguing that, for example, they have not been hospitalized for several years and do not see the need to take out medical coverage. While it’s important to live healthy and avoid the hospital and its costs, it would be foolish for someone to want health coverage for a medical emergency.
In conclusion, insurance is necessary for any growing economy like Kenya despite low uptake. It not only creates employment and suspends the concern of facing risks; it is an indicator of economic growth and a sign of a driving economy. More needs to be done to educate the masses on this issue. The responsibility falls squarely on the regulator’s court to put pressure on insurance companies to increase insurance contracting in the country. Incentives should be given to companies with the highest level of penetration to ensure that they maintain their influence and expand the market. Is insurance necessary? In fact, it is. The next time someone talks you out of taking an insurance plan, think again.
