The insurance industry must respond proactively to the challenges posed by climate change.
"Harambee means working together, pulling together, in one love, peace and harmony." (Rita Marley, song Harambee).
I was born and grew up in a small town called Murang’a. In our small town, everyone knew everyone literally. We were surrounded by real hustlers - mechanics, cobblers, market women and bar attendants.
In times of financial trouble, the community of commoners would pull together to help each other. Harambee spirit.
It is in that spirit the community started the Millennium Self-help group. This was after a neighbour who used to sell in a night club died and the family could not raise funds for a dignified burial.
Death brings several problems. Children depending on a deceased person can drop out of school. Granting dignified send-off is a moral duty. Hence our Murang’a society decided to come together and help. That was in the early 2000's.
Millennium attracted 500 members and further membership was frozen. A second welfare group called Juakali was formed to cater for the excluded persons. A third group called County cropped up after devolution in 2012 or thereabouts.
The three groups have almost similar rules. In case of death of any member or immediate family (parent, spouse or child), each must contribute a set amount. Any delay attracts a fine. Millennium members contribute Sh300. Juakali and the county each member contributes Sh200.
One can join more than one group. My parents belonged to Millennium. I am a member of the county.
On average, we contribute thrice hence I part with Sh600 per month. When my parents were present, they would contribute on average Sh900 per month hence our total household contribution per month used to be Sh1500.
Receive Sh100,000
A grieving member would receive Sh100,000 if all members contributed (Sh200 × 500 members) for those in County group welfare. There were instances where 20 per cent or 30 per cent members would lack money hence under collection. But generally members do their best to contribute.
Everything seems good and the foregoing points to good collective action to remedy social problems.
But who can spot something that needs improvement? A good mathematician or actuarial scientist can. And the ability to spot an inherent problem requires a deep understanding of the concept of insurance.
And the problem is simple - the endeavour is simply too costly unnecessarily for each member.
What my community is trying to do is practicing social "insurance". The core principle of insurance is called risk pooling, where losses from a few individuals are spread among a larger group reducing the financial impact on each member.
Each of the above groups has about 500 members. Not every member will experience loss at the same time hence coming together helps spread the risk.
But each member pays Sh600 monthly average (which rises when other nuclear family members' parallel contributions are factored) contribution is steep.
What makes Sh600 steep is because the total membership of 500 is too narrow. The larger the group of people who come together, the more accurately one can predict and manage future losses based on historical data.
Therefore, Millennium, Juakali and County welfare groups should combine and each member's contributions would dramatically come down.
A company with one million policy holders would render a cheaper cover than our welfare group of 500.
Further, premiums obtained would be invested elsewhere. Huge chunk of bond holders and other government debts are held by insurance companies. Profits from such investments compensates policy holders in terms of cheaper premiums.
Professional management
Thirdly, professional management of insurance companies staffed with good actuarials can only render cheaper premiums.
Hence the recent surge in popularity of last expense insurance policy. This cover pays a funeral cash benefit within 48 hours of notification of the death of an insured family member. Most insurance companies charge Sh1000 per annum for a payout of Sh100,000 .
That translates to Sh83.33 monthly contribution compared to Sh600 for welfare groups.
If you approach an insurance company as a group, you can negotiate a cheaper cover. Muranga County Government's medical insurance scheme for the vulnerable persons has about 40,000 households translating to about Sh160,000 individuals.
A last expense component was added that was priced at Sh800 per household (Sh66 per month).
In an attempt to ameliorate the stigma surrounding funerals, a wedding and child birth gifts of Sh10,000 were added in the package. Last week, the first few wedding gifts were given and some media spinned the story. That Murang’a wanted to incentivise births to boost population.
No. Women fertility rates in central are falling due to urbanisation and rising educational levels of women. Tokenisms will not reverse that.
Insurance penetration rate in Kenya is around 2.3 per cent against a global average of 7 per cent.
The popularity of social welfare groups like Millennium or Juakali or County in Murang’a town proves there are social gaps requiring insurance services.
Mama Mboga can easily get the desired social safety net at Sh83 per month for last expense.
But that requires massive public and civic education on how insurance works. To take insurance to the grassroots.
In the meantime, I remain a member of the County welfare group. My friend Ngim keeps reminding me of requisite monthly contributions whenever a member becomes bereaved.
Maina Kageni and King'ang'i - this is not a laughing matter. It is about dignified last respect. Social safety net for orphans. And providing families a little cheer for wedding and child birth.
Harambee means working together, pulling together in one love, peace and harmony.
Dr Irungu Kangata is the Governor for Muranga County. email Franciskangataik@gmail.com
