Equity Group: Insurance to outperform banking by 2030 – James Mwangi

Equity Bank’s insurance subsidiary could outperform its banking counterpart as early as 2030, if sales continue on a similar trajectory, says Group CEO James Mwangi.

According to the Group’s 2023 half year results, Equity Insurance – the insurance arm of the business – recorded a Return on Equity (ROE) of 61.5%.

“More importantly, however, is that we have sold 7.2m policies as of 30^th June 2023. We are committed to increasing insurance penetration to underserved sections of the population in the country and across the East African Community,” Dr Mwangi tells The Africa Report.

“And for the first time we are seeing that insurance is being bought and not sold,” he says.

“This is what makes us think that we have the right strategy.”

Currently, Equity Insurance offers life, and will soon offer health, and a variety of policies to cover specific assets owned by individuals and businesses such as home and motor insurance.

In theory, each banking customer could buy multiple insurance policies.

We started to realise that the creation of wealth wasn’t enough – we also have to protect it

“Policies are usually renewed each year; customers may choose to insure more than one asset or buy policies imbedded into purchases and lifestyle – such as insurance on travel. The potential is huge,” says Angela Okinda, the managing director of Equity Insurance. Okinda has led the business since its launch in March 2022.

Low-hanging fruit

The combination of financial education through the Equity Foundation, brand recognition, and accessibility of products through bancassurance – where insurance products can be offered via bank services – has catalysed insurance policy sales for Equity Group, explains Mwangi.

“We could easily end up in a similar situation to South Africa, where the insurance sector grows bigger than the banking sector,” he says.

As the financial services sector in Kenya has matured, demand for insurance products has transformed from a ‘nice to have’ into a ‘need to have’, accelerating its demand from a relatively low base.

According to data compiled by the Harvard Business Review, 83% of the population in Kenya has access to basic financial services. Insurance penetration, however, is more sparse with just 3% penetration in the country, according to KPMG.

Moreover, developing the Group’s insurance arm is also good for its banking business. “Looking closely at our data, we found that 40% of defaults on the banking side of the business were as a result of illness or death,” says Okinda.

“We could see that many of our customers were one incident away from bankruptcy and we started to realise that the creation of wealth wasn’t enough – we also have to protect it,” she says.

Strong results

Mwangi’s comment about Equity Insurance came on Tuesday at the Group’s half-year results briefing at its headquarters in Upper Hill, Nairobi, where the Group announced KSh26.3bn ($182m) profit after tax – an increase of 8% year on year – and a 23% growth in assets to reach KSh1.645trn.

94% of the population in the DRC is unbanked. That is a huge opportunity for all of us

Equity Group’s subsidiaries – driven primarily by the Group’s insurance and its Democratic Republic of Congo (DRC) business – account for 46% of total assets and 45% of profit before tax.

“The growth of the financial services sector in the DRC has lagged behind its peers in the region, but the risk associated with investing in the country is impeded in perception as opposed to reality,” says Mwangi.

And while competition in the region is heating up as Kenyan banks – in particular Equity Bank and Kenya Commercial Bank – scour the region for acquisitions to complement organic growth, Mwangi says that there is enough space for all emerging players.

“94% of the population in the DRC is unbanked. This is a huge opportunity for all of us,” he says.

Equity’s Congo subsidiary – EquityBCDC – is the second-largest bank in the country and recorded 144% year-on-year growth in the Group’s half-year results, hitting KSh11.4bn.

The CEO also said that the bank recorded a non-performing loan (NPL) ratio of 9.8% – considerably lower than the industry average of 14.9%.

Plans for a green bond, however, are currently on hold, given tough market conditions and the high interest-rate environment.