Two days after leaving hospital, Hellen Atieno returns to her grocery stall in Mariwa trading centre in Migori County, with more than just the fatigue of a week-long illness. She is desperate to recover lost time.
The days she spent in the hospital meant no sales, no income, and no means of paying the Sh67 ($0.52) daily instalment for the phone she bought on credit about two months earlier, risking her ability to stay connected.
Then her phone buzzes. Sh7,000 ($54) has just been deposited in her mobile money wallet, enough to settle her debts for the week, restock her business, and begin again.
‘I was not working for a whole week, so I didn’t have any money when I left the hospital. The insurance money really helped me start again,’ she says, adding that she’d borrowed from a friend to prepay a week’s instalments for the phone to stay online.
Ms Atieno got the Sh7,000 payout because her financed phone comes embedded with a health insurance policy. It pays Sh1,000 for each day of hospitalisation, to cover medical bills, or to just help recoup lost income.
First introduced by a device financier in 2024 to solve biting defaults on hire purchase phones, the embedded insurance model is picking pace in Kenya, with more vendors and financiers now looking to take it up and expand it beyond devices.
Today, the idea that began as a way to reduce losses on the booming buy now pay later (BNPL) business is emerging to be one of Kenya’s fastest-growing channels for distributing insurance, helping lenders protect repayments while bringing first-time covers to thousands of people who’d otherwise never had any form of insurance in their lifetime.
Kenya, despite being among Africa’s most developed countries, has one of the world’s lowest insurance penetration rates, currently at 2.44 percent, according to the Insurance Regulatory Authority, compared to Africa’s average of 2.7 percent and the world’s 5.4 percent.
Insurance penetration is the total value of premiums paid as a percentage of GDP.
Expansion of access has been slow. In the decade to December 2024, access improved only marginally from 6.1 percent of the population to 6.3 percent. Even the State-sponsored Social Health Insurance Fund (SHIF) covers less than a quarter of the people.
Affordability and lack of awareness have historically been the main barriers, cited by more than 80 percent of the uninsured, according to the latest Financial Access Survey. Now, insurance coming with financed phones is attempting to hack both.
In Africa, Kenya has one of the most advanced device financing markets, and embedding insurance in financed phones could offer a replicable model to expand insurance access on the continent.
‘Many Kenyans have always thought insurance is for the rich, and for years it was reserved for the rich. This model is proving otherwise,’ said Nzioki Ndeti, a microinsurance researcher and head of Shield Assurance.
Yet expanding insurance access was not the inspiration behind the idea. It was the pain of losing millions in non-performing device loans.
For a market where small economic shocks such as a short illness can mean zero income, the industry was forced to become creative.
‘Whenever we called defaulters to follow up on payments, they said, ‘I was sick, I couldn’t pay’; ‘my child was sick,’ or ‘I lost the phone’. So we thought, what if we added an insurance aspect to the devices?’ Recounted Martin King’ori, general manager at M-Kopa Kenya, the firm that pioneered the embedded insurance model in financed phones.
Defaults on device financing have been stark since the Covid-19 slump. While the model began to pick pace in the mid-2010s, several businesses that attempted it have since collapsed, and the ones that remain, including M-Kopa, struggled to break even or sustain profitability.
Lipa Later, for instance, which had raised over Sh2.1 billion ($16.6 million) to finance phones and other household items, collapsed last year after mounting defaults strained its operations. Shortly after, Wabeh, another BNPL startup, folded over the same challenge.
Often, these firms are helpless in the face of defaults.
In a tax dispute with the Kenya Revenue Authority in 2024, M-Kopa revealed that any attempt to recover devices on which customers had defaulted costs over twice the actual value of the gadgets.
Watu Credit, an asset financing firm focusing on motorcycles, three-wheelers, and smartphones, told Business Daily that it has recorded much higher default rates on phones than other assets it finances, but its only remedy is remote device locking.
Yet, rising phone prices and increasing costs of living have made device financing an evergreen market, and an essential one to Kenya’s digitisation goals.
Today, just 32 percent of the smartphones sold in Kenya cost less than Sh13,000 ($100), down from over 50 percent in 2019, according to tech market research firm Omdia. This has caused an affordability crunch for the crucial devices, pushing many towards financing options.
And amid defaults, embedded insurance has renewed hope to the country’s device financing model.
An M-Kopa spokesperson told Business Daily that since introduction of the health insurance aspect in January 2024, defaults have dropped dramatically, although they did not disclose specific rates.
‘Over 75 percent of customers who made claims report that the insurance helped ease their daily payment obligations during hospitalisation, precisely the moment when repaying a phone loan would otherwise be at risk,’ M-Kopa told Business Daily in an emailed response.
‘This has proved that insurance reduces the financial shocks that could push customers into default during emergencies.’
M-Kopa did to provide specific default rates before and after the insurance addition, saying it is trade sensitive. But users and vendors on the ground report a better repayment discipline. Ms Atieno, for instance, said the benefit of health insurance does inspire her not to default. ‘I know if I don’t pay I’ll lose the benefits. I’ve seen what it can do, I don’t want that to go away,’ she said.
Christopher Mwita, an agent selling financed M-Kopa devices, believes the insurance has given him an edge against competitors. Many of the customers he gets now are asking specifically for ‘phones with insurance.’
‘Selling these lipa mdogo mdogo (pay as you go) things is not easy, but the insurance has really made my work easy,’ he averred.
Sustaining the instalments coming is, however, not the be-all end-all of the embedded insurance. According to Mr Ndeti, what really matters is what happens after the phone is all paid up. ‘Does the user continue with the health insurance?’
When still paying for phones, the insurance premiums are invisible to the consumer because they are part of the daily instalments. Many of the customers don’t even know the insurer or the policy terms. Afterwards, it is upon Turaco, the microinsurance provider, to retain them.
‘With basic follow-up on WhatsApp, we manage to retain about 15 percent of these users, but with more intensive follow-up, through calls for instance, we realise a conversion rate of about 30 to 40 percent,’ said Rachel Levenson, Turaco’s chief commercial officer.
Ms Atieno is covered by SHIF, but over 75 percent of the M-Kopa users access insurance for the first time through the devices, according to Turaco’s internal review, and Ms Levenson reckons the conversion rate, is laudable given the nature of the market and the target.
‘It’s an added cost and the people we’re selling to are very price sensitive,’ she said.
Generally, the idea of microinsurance, especially for health, seems alien to Kenya – a market where less than 10 percent of insurers make profit from underwriting in medical segments. As a result, health insurance has become very expensive, and offering it at cheap premiums sounds impossible.
In addition to the small margins, fraud is a significant threat to the model. Turaco has invested heavily in artificial intelligence to curb fictitious claims and hasten settlements. But with premiums of only up to Sh50 a month, there’s only so much any insurer can do.
With the cheaper premiums comes an added cost for customers – AI. Humans barely, if ever, intervene in the claims processing, a factor that has meant claimants sometimes try multiple times to convince the robot their claims are real.
‘To keep the premiums low, we have to invest in the technology to catch fraud and improve claims processing,’ Ms Levenson said.
Ideally, Turaco says its claims should take at most four hours to process, but users report turnaround times of at least two days, and sometimes running into weeks.
But beyond the claims challenges, critics say the added insurance might be masking what is ultimately very expensive credit. Typically, financed devices end up being as much as three times the cash price, a cost borne fully by the buyer. But device financiers say this is the price of the risk.
‘It’s not overcharging. There’s a clear risk attributed to this type of loan, which is part of the cost, and that’s why it’s not the same as buying in cash. Remember, we’re also borrowing from banks, and we need to repay our loans as well,’ argued Andrii Volokha, East Africa general manager at Watu Credit.
However, without enforced credit scoring, all borrowers are treated equally, leading to high interest rates for everyone despite their risk profile. Experts argue this has led to overpricing of the products.
‘No one disputes that lending to a daily-earning, thin-file borrower carries more risk than lending to a salaried customer, and that risk has a price,’ argued Duncan Motanya, chairperson of the Fintech Association of Kenya.
‘Our concern is narrower and more specific: in parts of this market, the borrower appears to be charged for that risk twice…many asset-financing providers appear to price financed devices fairly uniformly across customers, rather than offering visibly lower rates to lower-risk borrowers.’
But the concept of embedding insurance on financed assets targeting low-income households, including motorcycles, house electronics, and even agricultural equipment, is gaining traction fast in the country, and with it, breaking traditional barriers to insurance. Watu Credit, for instance, is now also considering it.
‘We’ve seen a lot of interest from asset financiers, and we’re open to rolling out the service beyond M-Kopa, and beyond device financing,’ said Ms Levenson.
As microinsurance also begins to pick up pace in the country, with traditional insurers venturing into it, embedment in credit facilities is proving to be the fastest way to spur uptake, although with risks.
‘The poor also need to be insured. They also face risks,’ argued Mr Ndeti.
‘The only way to insure them is through products like that one.’
For Ms Atieno, as she goes about her day serving customers who had long endured her absence, the phone she feared losing due to a default now buzzes constantly with client payments. As the sun sets, she pays her daily instalment, and with it, an insurance premium. For Kenya’s device financing industry, every rescued repayment like this carries the cost of keeping the model itself alive.