A nurse attends to a patient at Equity Afia clinic in Kawangware, Nairobi.
From a building society in 1994 when it faced near insolvency to rising through the ranks to grow and overtake multinationals such as Absa Kenya and Standard Chartered Bank Kenya, Equity Group’s story has been that of disrupting the market.
Now Equity, in its quest to diversify its revenue streams, has fully entered the insurance industry and plans to deepen its presence in the health sector where it already runs Equity Afia clinics through its foundation.
Shareholders will next month be expected to ratify the board’s proposal to set up Equity Health Insurance—the newly formed company that the diversified financial services firm wants to use in offering medical insurance.
Equity’s entrance into the general insurance business barely two and half years after entering the long-term insurance business promises another disruption in a sector dogged by low penetration, fraud, and customer complaints.
This marks the latest disruption from the lender that started as a building society and successfully took on multinationals and other locally established banks to perch itself on the top of the region’s chart as the most profitable lender by the end of 2023.
The dream of delivering what Equity Group chief executive James Mwangi terms as “affordable, innovative and accessible” insurance products is quickly taking shape with the lender hoping to make money in a class of insurance that is generally a loss-maker for many insurers.
Retirement solutions
For Equity, the initial wins from Equity Life Assurance Kenya, which the group launched in 2022 as the first underwriting insurance subsidiary to offer life insurance and retirement solutions, gives a sneak peek into the boldness of its ambitions.
Insurance Regulatory Authority (IRA) data shows Equity’s life insurance subsidiary in the year ended December 2023 tripled its market share to become the fourth largest long-term underwriter in Kenya after just the second year of operating.
The IRA data shows Equity Life Assurance Kenya, which Equity Group owns fully through Equity Group Insurance Holdings, closed the period with a market share of 8.7 percent to become the fourth largest life insurer in the country—a jump from 2.97 percent in the preceding year when it was ranked 11 out of the 24 long-term insurers in Kenya.
Concerning the credit life business-- which involves insuring against the risk of customers defaulting on loans due to death or injury--Equity registered a drop to Sh2.3 billion from Sh3.84 billion but remained second to CIC Life (Sh5.1 billion), showing its potential in the long term insurance.
Equity’s huge financial muscles— Sh1.68 trillion asset base, Sh1.23 trillion customer deposits, and Sh219.88 billion in retained earnings as of the end of March 2024—gives it room to try out new things, unlike the many insurers faced with thin capital and profits.
The strong financial muscle has for instance seen Equity successfully compete in the talent war with hospitals and insurance firms.
Equity has now hired AAR Insurance Holdings CEO Patrick Gatonga and appointed him the managing director of the new health insurance company, adding to the growing list of top talent that it has recruited.
The Equity Group-backed medical franchise, Equity Afia, last year raided hospitals including Nairobi Hospital, Avenue Hospital, and the Aga Khan Hospital as it hired at least eight top managers to lead the next phase of growth.
Medical doctors
“All of them have come from the health sector. We are not about to pretend that bankers understand health. We understand the strategy of making things happen. Ours is to use the Equity brand and strategy to get the medical doctors to do what needs to be done,” said James Mwangi, CEO of Equity Group when announcing the new hiring.
Many commercial banks are increasingly chipping at Kenya's insurers’ market, especially through bancassurance and acquisitions but Equity believes it can get there much faster through greenfield licenses.
Group credit life business has been the low-hanging fruit for banks entering insurance, especially through bancassurance, since customers coming for loans are easily sold the mandatory cover.
Equity Group now has an opportunity to deepen its entry into insurance with the general insurance license that will give it room to offer medical and motor insurance, among other forms of covers.
The lender already has the upper hand on motor insurance, just as with credit life, since as a lender, it knows when customers want to buy vehicles and will use that opportunity to sell motor insurance as well as offer asset financing.
In a market where insurance is paid upfront, Equity enjoys the advantage of relying on its own loan book to offer premium financing— again an upper hand, unlike insurers who have to approach banks to arrange for premium financing for their clients.
Property and commercial insurance will also be another low-hanging fruit for a lender that had a mortgage book of Sh12.84 billion at the end of 2022—the eighth largest in the Kenyan market.
The lender’s Equity Afia, the outpatient health facilities that are spread over the country, means it may have its eyes set on clients visiting these clinics.
Equity already runs Equihealth, a medical insurance cover targeting individuals in a group of at least 10 people, allowing them to get cover for themselves and their families.
The group is also plotting to ride on its outpatient clinics and own manufactured drugs to disrupt the pricing of medical insurance, in what could solve one of the biggest headaches facing insurers—the cost of drugs. Many insurers have debated with doctors over the use of branded drugs as opposed to generic ones that cost relatively less money.
Mr Mwangi said November last year Equity is working on a partnership with Indian firms to manufacture drugs at affordable rates as a way of bringing down the cost of medicines and eventually result in lower premiums.
“We have had discussions with 60 companies from India to compete on manufacturing for us drugs under contract. The drugs will be branded Equity Afia medicine. We will be willing to give to other hospitals because it is about disrupting healthcare and making it affordable,” said Mr Mwangi.
102 outpatient clinics
Equity Afia runs 102 outpatient clinics spread over Kenya and attends to about 90,000 patients a month. This could rise to about 150 by the end of June this year and start seeing about 300 patients per month, if Equity sticks to its earlier shared strategy.
Mr Mwangi says such a number of patients will give it bargaining power when referring its patients to inpatient hospitals and therefore shield its medical insurance business from very high claims.
This will mark another disruption in medical insurance given that the current practice is that hospitals come up with the pricing for their services alone yet insurers pay for at least half of the patients visiting hospitals.
“The growth in the number of clinics and patients attended to will give us power to determine the inpatient policy in the country. We will be able to negotiate with hospitals that we will be referring Equity Afia patients who require inpatient services,” Mr Mwnagi said at the release of third quarter earnings in November.
The group plans to complete the disruption in medical insurance by starting its own inpatient clinics in future and also set up centres of excellence to offer specialised treatment—a move it believes would give it a complete view of the health business.
Mr Mwangi said this would allow the group to drive out fraud, cut down the pricing of drugs, and also eliminate unnecessary tests, helping build a sustainable medical insurance business.
Developed markets such as the US have successfully pushed for transparency in the pricing of medical services, where patients get to know the cost of a service before getting treated, helping patients make informed decisions for their benefit and that of insurers.
