Index Insurance in Kenya

Index Insurance in Kenya
An Interview with Michael Mbaka – Senior Project Manager, Financial Sector Deepening Trust (Kenya)

What do you think of the upcoming index insurance regulation in Kenya?

Well, at this stage,  I think we have drafted a policy paper which sets guidelines for the future regulations, however I believe that we have here an opportunity to enhance access to insurance in Kenya.

What are the expected benefits?

One of the key expected benefits is the creation of a consumer protection framework. This means that index insurance products will need to be explained very clearly and in a simple way, and all the contract terms (ex: triggers, reference weather stations, index design etc...) will have to be disclosed. Data collection and sharing will be a critical area to address since the claims are solely pegged on data. In addition, a recourse mechanism will be created so that consumers who are unhappy with their product will be able to seek redress. When the regulations are adopted, the insurance regulator will be officially in charge of monitoring these developments which should help build consumer confidence in the industry.

 In addition, the regulation on distribution channels of insurance should help expand the market. Allowing non-traditional insurance distribution channels such as cooperatives, mobile platforms and other aggregators should create an opportunity to see more people included in the market.

Finally, the upcoming regulations should help fill the current legal vacuum related to potential disputes between the various parties that have interest in index insurance. This would be either between insurers and reinsurers, the Government and insurers, or among insurers in the case of a coinsurance pools.  For instance, currently a number of reinsurance treaties have external court jurisdiction, therefore the creation of a legal framework for local arbitration should have positive impact on the industry.

Where do you see challenges in the future?

I see some challenges ahead with the capacity of the insurance regulator to oversee the market in an evolving index insurance industry where products complexity is prevalent. Some rapid capacity-building might be necessary as regards to index insurance. 

Also, beyond regulation, there will be a need for some industry based rules as regards to factor likes data management. There will be probably some roles for the private sector and the public sector, for the collection and management of data on a common platform, and the insurance industry might want to “self-regulate” some of these aspects.