Most banks in Kenya remain firmly rooted in the bancassurance model, a setup where they sell insurance products on behalf of insurance companies but do not assume the underwriting risks themselves. As of February 2024, 17 commercial banks and six microfinance banks were licensed to operate bancassurance agencies, according to the Insurance Regulatory Authority (IRA). Despite a few exceptions, notably Equity Group, NCBA Group, and Absa Bank Kenya, the industry has largely avoided becoming full insurance providers.
Low Capital, Low Risk, High Reward
One of the main reasons banks stick with bancassurance is the minimal capital investment it requires. Banks utilize existing infrastructure, branches, staff, and digital platforms, to distribute insurance policies and earn commission-based revenue. This allows them to avoid the high startup costs of launching an insurance company, including securing licenses, hiring actuarial teams, and setting up underwriting operations.
Additionally, by not taking on underwriting roles, banks avoid direct exposure to insurance risks such as claim volatility. Insurance payouts can be unpredictable, especially in segments like health, motor, or property insurance. With bancassurance, these risks are borne entirely by the insurer, not the bank.
Regulatory Complexity Deters Entry
Operating as a full-fledged insurer comes with regulatory demands from both the Central Bank of Kenya (CBK) and the IRA. This dual oversight increases compliance complexity and operating costs. Banks would have to meet separate capital reserve requirements for their banking and insurance businesses, maintain solvency margins, and invest in risk management systems. Most banks see little incentive to take on such regulatory burdens when bancassurance is already profitable.
Established Profitability Keeps Banks Comfortable
Bancassurance has proven financially viable. For instance, Absa Bancassurance Intermediary Limited grew its profit before tax by 29.2% year-on-year to KSh 560 million in June 2024. KCB’s bancassurance arm earned KSh 737 million in 2023, while NCBA made KSh 292 million from bancassurance. These figures validate the model’s potential for stable, low-risk earnings, especially in a market where traditional banking margins are tightening due to regulatory and digital disruptions.
Customer Distrust in Insurance
Kenya’s low insurance penetration rate, of between 2.3% and 3% compared to a global average of 7%, is another factor. Many Kenyans remain skeptical of insurance, often citing poor claim settlement and opaque policies. Bancassurance helps banks maintain their reputations while offering insurance products through partnerships with trusted insurers. By acting as intermediaries, banks avoid being held directly accountable for claim-related disputes or delays.
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Why a Few Banks Are Becoming Full Insurers
Equity Group, NCBA Group, and Absa Bank Kenya are among the few banks breaking from this norm. Equity launched its own insurance company, ELAK, in 2022. NCBA acquired AIG Kenya to establish NCBA Insurance in 2024. Absa owns controlling stakes in two insurance firms, Absa Life Assurance Kenya and Absa Insurance Company.
These banks aim to gain full control of the insurance value chain, from product development and pricing to underwriting and claims. By becoming insurers, they can capture higher profit margins from premiums and investment income instead of just relying on commissions. Equity, with over 16.9 million customers, and NCBA, with a growing regional footprint, see insurance as a long-term growth opportunity and a means to deepen customer engagement.
Barriers Remain for Most Banks
For the remaining eight listed banks, including KCB, Stanbic, I&M, Standard Chartered, Co-operative Bank, DTB, and HF Group, the full-insurance route remains unattractive due to several barriers:
- Capital Reserve Requirements: Insurance firms must hold significant reserves, which ties up capital that could otherwise be used in core banking.
- Operational Complexity: Underwriting and claims handling require specialized teams and systems, increasing costs and operational risks.
- Financial Risk: Insurance firms face claim volatility and market-related investment risks that do not affect bancassurance agents.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.