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Saturday, 23 May 2015


The ancient Chinese farmer, medieval Venetian merchant and the conquering Victorian company man had one thing in common. They took insurance. Arguably, our civilization has gone this far because men took risks and knew there was a fallback plan in the face of insurmountable odds.

Generally, the insurance industry has grown over several centuries into a hydra of products and services, vastly complex and vaguely understood. However, through all its manifestations, the primary goal of insurance is to hedge against the risk of contingent loss. To this end, it has failed to ignite the African imagination.

Historically brought by the white man as he colonized and disenfranchised Africa, Insurance has suffered shame in the hands of a misinformed continent. Only the affluent and middle class seem to grasp its power with penetration rates in the continent below 5%. Insurance agents have also failed to inspire its uptake with a general feeling that they are unreliable, untrustworthy and missell the complex product they represent.

Let us underline the fact that more than 48.5% of sub-Saharan Africa live on $1.25-a-day, 414 million people as of 2010.  More than 70% of the poor in Africa live in rural areas and depend on agriculture in smallholdings.
The grim picture is that they are faced with poor crop production, lack of access to markets and poor infrastructure. They are poorly organized, isolated beyond the reach of social safety nets and poverty programmes. HIV/ AIDS is also a burden…

While this is happening, Insurance companies are doing brisk business in the cities and towns fighting for a dwindling upper to middle-income market, made up of mainly formally employed people. The competition between insurance companies in Kenya (one of the best performing insurance markets in Africa) is dire, with 49 licensed insurance companies, fighting for a market with 3.4% penetration. Traditionally they have been risk-averse with most of their investment going to ‘secure’ government securities.

There was a predominant lack of customer focus, and lack of market intelligence to appreciate the needs of 90% percent of market, that is, the middle-low income to those living below $2 dollars per day (as shown in the diagram below). Before the mobile phone revolution, it would have been next to impossible and costly for the insurance industry in Kenya to tap into this segment of the market.

Fortunately, M-Pesa made financial inclusion a reality in Kenya. More than 70% of households in Kenya and more importantly, more than 50% of the poor, unbanked and rural populations use the service.
Technology is the primary reason microinsurance is one of the fastest growing microfinance products in the world. Does it then mean Insurance companies are on a trajectory to a massive disruption in a “software is eating the world” era?

The battle lines are being formed and a lot of strategic maneuvering is happening among the top insurance companies in Kenya. Acquisitions, cross border expansion, and engagement of pedigree global management consulting firms being the order of the day.

The reality is more modest; competition should be for the customer interface. A traditional brick-and-mortar-services approach will guarantee losses and certain demise.

To understand the mismatch, you need to understand what we call digital capital—the resources behind the processes key to developing new products and services for the digital economy. Digital capital takes two forms. The first is traditionally counted tangible assets, such as servers, routers, online-purchasing platforms, and basic Internet software. They appear as capital investment on company books. Yet a large and growing portion of what’s powering today’s digital economy consists of a second type of digital capital—intangible assets. They are manifold: the unique designs that engage large numbers of users and improve their digital experiences; the digital capture of user behavior, contributions, and social profiles; the environments that encourage consumers to access products and services; and the intense big-data and analytics capabilities that can guide operations and business growth. They also include a growing range of new business models for monetizing digital activity, such as patents and processes that can be licensed for royalty income, and the brand equity that companies like Google or create through digital engagement. (Sourced from McKinsey Quarterly - Measuring the full impact of digital capital)

Noninsurance companies (read Safaricom) with strong digital capital may be poised to redefine insurance in Kenya rather than the incumbent. The picture below paints this picture vividly. 

The disruption that faces the insurance industry in Kenya will be driven by the entity that understands and captures the microinsurance segment.
Digital disruption is driven in three dimensions simultaneously: new product, lower price and better customer satisfaction; cheaper, better and highly intimate. Information will become the tool of disruption and will bring about a competitive advantage.

Why will it happen? 

Insurance is an intangible product therefore the entire value chain can be digitized. To this end, there is a lot of experimentation happening in the market and innovation is inevitable. 

The potential client in the microinsurance market needs financial instruments to empower themselves. They need support and knowledge in farming. They need weather prediction. They need market intelligence on where to sell their produce profitably. They need cost efficient storage for their produce. They need instruments that allow them to pool in groups and buy life- changing machinery or equipment; they need subsidies et cetera. The intention is to ultimately reduce their risk and ensure their success, which in term guarantees their upward mobility.

To accomplish this, it is essential for the Insurance industry to exist in an ecosystem and borrow a leaf from other markets. In Peru, LA Positiva  uses rural water networks to distribute its products by adding premium payments to water bills. In Sri Lanka, Sanasa offers livestock insurance, with RFID microchips placed on livestock. It also offers weather index insurance offering protection against weather-related risks and natural disasters for food crops

Can the Insurance Industry in Africa align with community-based projects? Can they invest in projects that empower communities instead of offering traditional products? Can they be investors and partakers of the success of the farmers?

For this to happen, a link between financial services and insurance will have to exist and insurance products “will and must” be simplified and individualizeda necessary reality in an era of data analytics.

The main competition for Insurance companies in Kenya will definitely have to be indecision; a situation where people wait until a disaster strikes to pay out of their pocket for expensive health, funeral and other services. The other consideration will be family and informal savings and lending groups that people depend on when disaster strikes.

There is room for mutual microinsurance, which is more intimate, grassroot driven, community focused and inspires trust. As we speak, someone somewhere is studying it and developing a software solution that will cater to this market my hope is that it is an incumbent insurance company in Kenya.

In conclusion, microinsurance is a weapon for poverty alleviation. It is a safety net for microentrepreneurs, and with microfinance, it creates synergies for success.

Sunday, 3 May 2015


I remember the first time a computer made an impression. It was in 1993, and I was living in Nanyuki an outpost town in Kenya (at least back then). I was ten, and I had gone to visit a programmer who had been hired by a research team studying Mount Kenya and the ecology around it. Although most details are hazy today, I remember the programmer, I really thought he was the most intelligent man alive and everything that came out of his mouth was the golden truth. I promised myself that one day I would own and operate a computer like him. I was one of the first students in Kenya back in 1997 to take up IT as a subject in high school, I honesty think that was a blessing because we had a volunteer from the UK who had experience in developing software, he took us through three of the four year in high school, it is through him that we really dug into C++, C and Pascal programming languages. It is from here that some of my colleagues eventually found themselves working in the Greater Seattle area for Microsoft, and a few other multinationals.

The Equator passes through Nanyuki Source:
So why do I share this story?

Over the last twenty years, my generation has seen tremendous change and disruption in what was once believed to be culturally acceptable.  Many of us migrated to the cities in search of a better education and life. Many more dreamed of travelling to Europe and America to get a better livelihood.

The reality is that for those who go to Western countries, a minority actually became great successes, but a far greater percentage end up barely surviving and live from hand to mouth, or worse still die in the high seas having not arrived at their safe haven.

As all this is happening the great majority of Africans are young, unemployed, and uninspired. They lack mentors who can train them in catching the proverbial fish that can sustain them through life. The kind of education they receive in public schools is only reflective of the lack of focus seen in how governments are run across Africa. Teachers are few, underpaid and overstretched, ill equipped to educate much less mentor the flood of children left at their school gates, by a population barely making a living. 

I have visited swatches of land around my country where there is no trace of a human being, while in the cities there are moments when you cannot walk on a straight path because of the density of human traffic choking the life out of our cities.

And while this is the state of affairs in all African countries, statistics shared by World Bank and Bloomberg point to Africa for strong economic growth.  Is this a contradiction? Or is this gradualism at work. Where despite the harsh reality that disease and poverty is still ravishing Africa, the continent is getting better a man at a time.

Most of my writing points to a bright future for Africa. In this article, I would like to explore the theory that technology is the centerpiece of this vision becoming a reality. And for me the technologies that will drive this change include social media, mobile computing, data analytics and cloud computing.

How have these technologies altered the African landscape?

The mobile phone has collapsed the distances that once made communication impossible between relatives in the city and rural areas. Research also confirms that mobile phones are effective as means of searching for labor-market information, which then drives migration among rural populations.

The mobile phone has also been lauded for being the tool that will allow financial services to reach the unbanked and underserved rural populations inexpensively and/or cost effectively. But many of us forget that once upon a time, banks would visit rural outposts once in a few months to offer their services to a rural community; this was never a successful venture.  With mobile phones and the ecosystem it has created, we now have banking agents, who for an affordable rate can offer increasingly complex and higher value financial services to villages across the developing world.
Graph showing U.S. production of corn in 2015 at more than 150 bushels per acre as compared to African corn yield at about 30. Source:Gatesnotes

Seven out of ten Africans are farmers, but they are far less productive than their counterparts in other continents, why? There is a disconnect between the agricultural research being done, and its dissemination to farmers across the continent.  There is lack of better food storage, lack of knowledge around use of fertilizer, crop rotation, timing and planting techniques. The process by which farmers get this information is called agricultural extension. It was traditionally expensive and complicated and required highly trained agricultural experts to travel and engage the farmers. However, today, the mobile phone can deliver this service, inexpensively and effectively.   


The other dimension to this story lies in the elimination of the middleman, who usually depends on the poverty, ignorance, lack of information, short window of freshness, and the exorbitant cost of distribution that face most farmers across Africa.  They buy fresh produce at rock bottom prices in the rural areas and make a large profit by selling these produce in urban areas, where food is desperately needed. 

The answer here lies in the creation of cost efficient networks that can effectively allow farmers to negotiate better prices with their consumers, which in the end affords them higher prices.  

In Kenya, for instance, there is a quiet revolution brewing as young professionals are going back to the farm and using better farming practices and adopting the latest farming technologies. And they are using social media to educate, inspire and collaborate with each other.
Technology is altering both how we educate Africa, read here, and how we deliver health care, read here.

SMEs contribute greatly to the African economies. Despite this, most are not part of the formal economy and are severely hampered by a weakly developed business environment hampered by red tape, corruption, complex entry regulations and few incentives to become a formal part of the economy.

A case study on the awareness of cloud computing by SMEs in South Africa, uncovered that most of the respondents had very low, to low understanding of cloud computing and the terminology used and how it could benefit their businesses. And while there are counter-arguments to adopting cloud computing, the truth is that Africa is ripe for its adoption predominantly because it allows us to utilize infrastructure, human capacity and experience that is lacking across the continent. It allows SMEs to compete favorably internationally.
Africa 2.0 Source Africa Progress Panel

The conversation leading to the adoption of cloud computing in Africa needs to be basic. African SMEs need to also understand that when they are using Facebook, Google mail or WhatsApp they are actually utilizing the cloud.

With time more technology innovations will arise that will target the individual SMEs as technology incubators, hubs and competitions like Pivot East become established across the continent.

In conclusion, I believe because of technology, Africa is witnessing explosive but gradual change that will empower the continent. But am sure you already know that!