File image: IOL.
INTERNATIONAL –Insurance companies across East Africa are yet to fully embrace the benefits of digitization that include use of big data to optimize their businesses even as they record low return on equity, a new report released on Monday showed.

The report by Deloitte East Africa indicates that in Kenya, the returns on equity have been on a downward trend despite a rising growth in gross premiums.

"A slow growth of economy is expected to continue exerting downward pressure on return on equity as insurers compete with new and existing players for market share," the report dubbed Insurance Outlook Report East Africa 2019 indicated.

In Tanzania, the return on equity was at its lowest at 2 percent in 2017 compared to the previous five years.

"The return on equity has been on a downward trajectory for the past three years," said the report. And in Uganda, the report noted that the return on equity has been flat over the past three years but significantly higher than the return for shareholders of Kenyan entities.

The report revealed that most of the insurances in the three countries have stuck to their traditional businesses despite losses.

"In Kenya, motor private and medical business classes are the largest. However, they are also among the most loss-making businesses. Insurers could investigate other emerging business classes that have a potential for growth to diversify their business mix," said the report.

Similarly in Tanzania, the largest growing business classes are motor and health but they are also the sectors with the highest loss ratios. And in Uganda, the fastest growing business classes are personal accident and medical, with the former, however, showing lower loss ratios than some of the slower growing classes such as motor.

Deloitte East Africa insurance industry leader Rebecca Kariru-Muruki noted that insurers in East Africa need to look at ways of remaining relevant in the competitive scene while improving their operational efficiency using technology.

"The first insurers, who capitalize on the opportunities that digitization and automation offer, will most likely be the biggest beneficiaries. It is up to insurers to start small without fearing to fail and make iterative changes to their business as usual approaches," said Kariru-Muruki in a statement.

She noted that insurers need to find ways of making the transition to using big data which is more cost effective and efficient.

According to her, insurance companies could seek partnerships with technology firms to develop the necessary systems that could leverage on the company's data.

Charles Luo of Deloitte said that data is growing at a fast rate and insurance companies need to be prepared to take advantage of it.

"The amount of digital data created is constantly increasing and this growth brings about opportunities for insurers to leverage big data. It is estimated that by 2020, new information generated on average for every human being will approximately amount to 1.7 megabytes per second," said the report.

Besides the low adoption of technology in the sector, other challenges insurance firms across the region are facing include fraud, new legislations and International Financial Reporting Standard changes.