Insurance withdrawals hit Sh13 billion as economic struggles among Kenyans deepen

Insurance customers in Kenya withdrew a record Sh13 billion in the year ending December 2023, marking the highest payout in two years.

The data from the Insurance Regulatory Authority (IRA) reveals a dramatic increase from Sh5.15 billion in 2022, a rise of 2.5 times.

This spike comes as many policyholders used their pension and investment savings to cope with the ongoing economic challenges.

The Sh13 billion in surrenders and withdrawals is the highest figure since 2021 when disruptions from the Covid-19 pandemic led to a cash-out of Sh17.12 billion.

Surrenders refer to completely abandoning insurance policies, such as education covers, and cashing out accumulated amounts. Withdrawals, on the other hand, involve partial cash-outs from products like unit-linked policies and pensions without fully ending the cover.

While withdrawals were the main contributor to the surge, rising 5.5 times to Sh10.23 billion from Sh1.85 billion in 2022, surrenders fell by 16 per cent to Sh2.78 billion, reaching a four-year low.

Many policyholders opted for withdrawals to avoid the penalties associated with abandoning their policies altogether.

The total claims, which include death benefits, maturity proceeds, and other annuities, as well as surrenders and withdrawals, reached Sh94.13 billion, a 14.6 per cent increase from Sh82.13 billion in 2022.

The IRA clarified that "claims include payments for death and maturity proceeds, while withdrawals relate to pension and some investment classes of business."

Skipped premium payments

These trends are supported by data from the 2024 FinAccess Household Survey, conducted by the Central Bank of Kenya, the Kenya National Bureau of Statistics, and Financial Sector Deepening Kenya.

The survey, published in December 2024, found that nearly half of insurance customers (44.1 per cent) skipped premium payments.

The report highlighted that the number of insured customers, excluding social health insurance, had declined by approximately 130,000 people, dropping from 1.9 million in 2021 to 1.77 million in 2024.

A major reason behind the rise in surrenders and withdrawals is the pressure of increasing living costs and lower disposable incomes.

The survey linked this financial strain to the government's introduction of new mandatory deductions.

From October 2023, workers began contributing 2.75 per cent of their gross pay towards social healthcare programs. Earlier, in February 2023, the government had doubled contributions to the National Social Security Fund to Sh2,160.

The previous year, a 1.5 per cent housing levy on gross pay had been imposed. These additional deductions, combined with inflation rates that have outpaced wage increases for four consecutive years, have left many households struggling to meet basic needs, including paying for insurance.

These financial pressures have meant that for many people, maintaining insurance premiums has become a lower priority compared to securing essential day-to-day expenses like rent, food, and education.