Mandatory insurance of motor vehicles has pushed up the demand for general insurance business in East Africa even as the overall penetration levels remain at a record low, according to a new financial sector analysis report.

A market study by AIB Capital Ltd shows that general insurance business controls an average of 77 per cent of the total premiums in Kenya, Uganda and Tanzania, with motor and medical covers commanding the largest share of the non-life business.

Most people are keen on taking out property and casualty insurance to guard against risks such as damage to property and accidents.

In Kenya, the biggest contributors to non-life business are medical at 25 per cent and motor at 23 per cent while in Uganda motor and fire form thebulkof the general insurance business at 30 per cent and 18 per cent respectively.

Life insurance penetration in Uganda and Tanzania remain under 0.1 per cent.

The penetration of life business (long-term savings) has been hindered by lack of a savings culture, insufficient data on mortality and longevity and the fact that most people work in the informal sector where it is difficult to collect the premiums.

Insurance penetration remains a challenge for the region’s financial sector regulators, having stagnated at below two per cent for decades.

Uganda and Tanzania have the lowest penetration ratios of 0.9 per cent each while Kenya and Rwanda have penetration levels of 3 per cent and 1.6 per cent respectively.

South Africa has the highest penetration ratio of 14 per cent.

Comparatively, EA’s insurance sector is one of the fastest growing industries in Africa with average annual premium growth rates of above 17 per cent, largely due to strong economic growth and rising income levels.

According to KPMG, the insurance sector in East Africa has huge potential and opportunities but the region is currently characterised by low levels of insurance penetration partly because of lack of distribution channels for the rural population and poor innovation in new products.

Other impediments are low levels of awareness, distrust and corruption.

The situation has not been made any better by the increasing incidence of fraudulent claims, particularly in the motor class, that has seen innocent policyholders face high insurance premiums.

Kenya leads its regional counterparts in fraudulent insurance claims, followed by Tanzania, Rwanda and Uganda.

According to Deloitte East Africa,  the demand for both life and non-life insurance products are set to rise with more households joining the middle income class and as the market for project risk coverage soars, driven by the ongoing investment in infrastructural projects across the region.

Analysts at AIB Capital said the global insurance industry gained momentum in 2014 with total direct premiums written growing by 3.7 per cent to $4.77 trillion after a year of stagnation in 2013.

“Countries with higher incomes per capita spend more on insurance, hence have higher penetration levels,” according to AIB Capital report.

According to the report, a point of saturation has been reached, with high income and most advanced economies reaching the flat growth phase.

This means that insurance premiums in these countries will grow at about the same rate as real gross domestic product per capita and in times of crisis, premiums are expected to stagnate or decrease in line with GDP.

It is argued that with low premium growth, insurance companies in countries with higher incomes per capita are looking for new opportunities in emerging and frontier markets to boost their premium growth.

As a result the EA region is expected to see global insurance  companies coming in to set up operations either through greenfield entries or mergers and acquisitions.

Kenya already has seen the entry of Barclay’s Life (Barclays Africa), Allianz (French) and Prudential Assurance (London) through greenfield entry, and several mergers and acquisitions, particularly Swiss Re, which acquired 26.9 per cent stake in Apollo Investments; and Leapfrog Investments, which acquired a 60 per cent stake in Resolution Health East Africa.