In recent years, private health insurance premiums in Kenya have been rising at double the rate of inflation, possibly deterring small and medium-sized companies (SMEs) from protecting the health of their workforce.
This has huge implications, not just for the employees themselves, but for the productivity of companies impacted by staff sickness. Currently, only around 4% of the Kenyan population is covered by private health insurance, and the majority of those are formal sector workers. However, many people who work for smaller businesses are employed on an informal basis and the penetration of health insurance among these workers is extremely low.
Ironically, recent legislative changes designed to stabilise the insurance industry and protect policyholders may actually be contributing to the problem of medical inflation. Strict new capital requirements governing the level of funds insurers must have available have forced some out of the market and encouraged others to merge.
Ironically, recent legislative changes designed to stabilise the insurance industry and protect policyholders may actually be contributing to the problem of medical inflation.
This consolidation of the market has decreased competition, meaning there is less incentive to keep premiums low to attract business. Other issues such as fraud and increasing hospital charges have also fuelled the rise in health insurance premiums.
Given these conditions, it’s not surprising that many SMEs have been reluctant to invest in private medical insurance for all but their most senior staff. However, new developments in the insurance industry could now help to make health insurance more accessible for this important sector of the Kenyan economy.
Kenya’s cost-saving trends that SMEs can’t afford to miss
So let’s look at some of the trends that are likely to affect health insurance prices for SMEs, and how your business could stand to benefit.
1. The rise in insurance products aimed at small businesses: In July 2017, Cabinet Secretary for the National Treasury, Henry Rotich, spoke about the need for a wider choice of affordable insurance products aimed at SMEs.
The industry was already becoming aware of the lack of insurance penetration in the Kenyan SME market and has begun to make strides to fill the gap.
There is now a small but growing selection of insurance products designed specifically with the needs of SMEs in mind, including several health insurance packages. Although they may come with certain restrictions, they are likely to offer an affordable entry-level option. And if you have previously only insured the health of your most senior staff, products such as these could enable you to make it available to all.
One of the growth areas is micro-insurance, which suits small groups of low-income individuals, families or employees. These simple, low-cost insurance products are attractive to small businesses with limited budgets. Even some of the major insurance providers have recently introduced or begun to develop micro-insurance products for SMEs, realising that it could help them reach a valuable untapped market.
2. Emergence of specialised insurance products: In response to market demand, insurance companies are increasingly launching products aimed at particular market segments.
For example, there are now medical insurance packages available aimed specifically at people who work in mining and exploration. This gives employers the option of choosing highly relevant coverage for the people who need it, knowing it’s designed to suit their very specific needs.
In addition to being pocket friendly, these plans also have specialised benefits and could potentially yield enormous savings. For instance, imagine the cost of airlifting injured miners for emergency hospital treatment after an accident.
And of course you can choose a lower-cost standard medical insurance package for employees whose work doesn’t routinely take them into dangerous environments.
And of course you can choose a lower-cost standard medical insurance package for employees whose work doesn’t routinely take them into dangerous environments.
There are also regional plans aimed at mid-level executives and expat workers that cover Africa and even parts of Asia. Again, this gives you the option to provide specialist cover for a select group of employees. This could also score you points when it comes to attracting and retaining the best people for senior roles.
Another growth area in Kenya at the moment is Islamic insurance, known as ‘takaful’. In order to comply with Sharia law, this is based on principles of mutual protection and shared responsibility.
Takaful insurance products are generally reasonably priced and policyholders could also stand to benefit from an end-of-year bonus, because if there’s any money left over it will be distributed between the policyholders.
Although they are aimed mainly at Muslims, who make up 15% of Kenya’s population, takaful products are available to anyone. So it may be worth considering takaful insurance if you’re looking for creative ways to keep your insurance costs down.
3. Investment in technology: According to a recent report, financial technology (fintech) is likely to play an increasingly important role in the SME insurance market over the next three years. In fact, in Kenya insurers have already been investing heavily in technology in order to boost their efficiency.
Key areas of focus have included streamlining administrative processes and detecting and managing fraud, which has caused a serious issue for Kenya’s health insurance providers. It is thought that around 30–40% of claims are fraudulent, according to Kenya’s Insurance Regulatory Authority.
Of course this has had an inevitable impact on premiums. However, experts are optimistic that putting the right technology in place will help insurers pick up fraudulent claims more effectively, enabling them to bring the problem under control.
4. Increased emphasis on disease prevention: Across the globe, rates of non-communicable diseases (NCDs) linked to poor lifestyle habits are on the rise. They are already the leading cause of death today across the world, with the rare exception of sub-Saharan Africa.
However NCDs such a cardiovascular disease, lung disease, diabetes and cancer are becoming more common in Kenya and now account for 27% of total deaths, according to the World Health Organization (WHO). Worryingly, the four bad habits that are linked to the development of NCDs – tobacco use, excessive drinking, inactivity and unhealthy eating – are becoming increasingly widespread among young Kenyans.
The government has attempted to intervene while there’s a chance to stop the situation from spiralling out of control, with measures including adding more physical activity to the school curriculum and running anti-smoking campaigns. This is part of its new, increased focus on disease prevention, which is a key aspect of the Kenya Vision 2030 strategy for health.
Around the world, more and more employers are implementing workplace wellness schemes. These may encompass a combination of aspects such as help with quitting smoking and cutting down on alcohol, exercise programmes and health screening and assessment. The Middle East and North Africa (MENA) is still lagging behind on this front. However, workplace wellness is becoming more popular among progressive employers, and some insurance providers and brokers in the east African market are now offering help with putting schemes in place.
Taking a proactive approach to improving the health of your workforce could reduce the number of medical insurance claims your staff make, which should help to control premiums. You could also stand to reap rewards in terms of productivity as well as engagement and loyalty.
5. Lower cost medicines: One of the factors that drives up the cost of healthcare in Kenya is the use of expensive branded drugs which of course has an impact on health insurance premiums.
Thankfully the government has authorised ‘parallel importation’ of branded drugs by selected pharmacies to be sold at a reduced price. For some medicines there are much cheaper generic versions available. And now Kenyan drugs manufacturers, keen to increase their market share, are also pitching their prices lower.
In an effort to curb rising health costs, some insurance providers in Kenya are putting clauses in place that enforce the use of the most cost-effective choice of drug. Using one of those companies to provide your staff health insurance could help you keep your premiums down. Alternatively, you could just encourage your employees to ask doctors to specify the cheapest version of the drugs they prescribe.
In an effort to curb rising health costs, some insurance providers in Kenya are putting clauses in place that enforce the use of the most cost-effective choice of drug.
How could your SME benefit from these trends?
If you have so far resisted providing health cover as standard, you might struggle to see how most of these trends could help you make savings. However, consider the impact of absenteeism and presenteeism on your business. As well as the effect health cover can have on staff retention.
Unplanned absences (absenteeism) have a whole range of negative effects on an organisation, according to 2014 research from US multinational management services company Kronos. In the US, unplanned absences were found to add to colleagues’ workload by 69% and increase stress by 61%, damaging the morale of employees by 48%. In Europe, employees perceived the productivity loss due to other colleagues’ unplanned absences at 24%, with that number at 40% in Mexico.
Meanwhile, presenteeism (employees coming to work but in ill health) can be costly as well. In fact, the Chartered Institute of Personnel and Development (CIPD) stated that presenteeism is ‘the biggest threat to UK workplace productivity’ – a trend that is certainly not specific to the UK and has global implications.
So by providing health insurance, you limit absenteeism and presenteeism by enabling your workforce to get the medical attention they need when they need it, thus working happier and healthier. And more productively.
In terms of retaining existing staff and attracting top talent, two things are clear – employees who feel well looked after by their company are more likely to think twice before moving (so lowering recruitment and training costs) and those searching for jobs are more likely to be attracted to your company if it offers a solid benefits package.
For SMEs in Kenya, keeping costs under control is vital. Understanding the role healthcare for your staff can play in this ultimately gives great peace of mind to employers while ensuring you get the best from employees.