The Insurance industry in Kenya has had a penetration and uptake of 3 per cent according to a report released by the Association of Kenya Insurance (AKI) in 2017. Tis mean that insurers have been leaving out 97 per cent of the Kenyan population.
The industry expects a great disruption from 1 January, 2021. This is the date when IFRS 17 is expected to be fully implemented by Insurance firms and replace IFRS 4 which came in place in 2005.
International Financial Reporting Standards (IFRS) is a common way of financial reporting across international boundaries to make business more comparable.
IFRS 17 provides a robust standard whereas IFRS 4 allows a myriad of different accounting policies within insurance resulting lack of incomparability.
IFRS 17 include complex fundamental changes to accounting in liability measurement and profit recognition in insurance contracts.
This will change the way insurers report income earned from life insurance business since they cannot report future premiums earned from the life cover.
Under these rules investment income, will not be counted in the overall profits of the insurer. The quality of assets will be measured at a higher level. These changes will lead to change in product pricing leading to increase of premiums.
Insurance firms will have to employ highly skilled actuaries raising the cost of human resource.
These changes will as well lead to a decline in income earned by insurance firms. For the underwriters to thrive, they will have to do away with insurance and go directly to their clients hence reducing their expenses.
The insurance firms will build up their distribution teams to enable them reach to more clients and sell equal or more amounts to what brokers were selling.
Effect of get rid of brokers from the chain
Clients will not have a range of products to select from when buying an insurance product. Insurance brokers have a range of products from which a client can select from, they are sell products for different underwriters and are able to advise their clients independently on the appropriate product depending on his or her needs.
The premium amount paid by clients is set to increase. This will make insurance products less affordable making most individual clients pull away. It is clear that most Kenyans take insurance covers because it is required by law, were it not for the law, they would do away with any form of insurance.