How Kenyan tax reforms impact insurance business

The insurance industry in Kenya is facing a challenging landscape as new policy measures come into effect, reshaping the tax environment and impacting the attractiveness of insurance products. Harold Mbati, Executive Director of East Africa Reinsurance Solutions, shed light on the implications of recent tax reforms in a recent interview with CNBC Africa. The government's move to introduce value-added tax on insurance payouts is poised to have a significant impact on the industry, with premiums expected to rise. This tax adjustment comes at a time when the insurance penetration rate in Kenya is already below 3 percent, highlighting the potential challenges for both insurers and policyholders. Mbati emphasized that the increase in taxes could make insurance products less affordable for low-income earners, affecting the growth of micro-insurance and affordable coverage. In response to these changes, insurance companies are focusing on product diversification and redesign to cater to evolving customer needs and navigate the shifting regulatory landscape. Despite the challenges posed by the tax reforms, there are opportunities for investment in insurance technology, with incentives and exemptions available to encourage digital transformation within the industry. The regulatory changes outlined in the Finance Bill 2023 aim to strengthen capital adequacy requirements and enhance stability within the insurance sector. While the evolving tax environment in Kenya presents challenges for insurers, Mbati emphasized the industry's resilience and adaptability in adjusting to dynamic tax policies. Looking ahead, the future of the insurance industry in Kenya will involve strategic pricing strategies and a shift towards transparent pricing structures that account for tax considerations.