Insurance Services, Stock Broking, Farming and Real Estate: An Interview with Kunal Bid

Interview with Kunal Bid, Operations Director at BTB Insurance Brokers Ltd and CEO of Bid Securities Limited

What is your assessment of the insurance sector? Is the market competitive? What are the latest trends?

The insurance penetration in this country is only 5-6% of the entire population. Obviously, there is a huge potential in this space. However, there are too many competitors. We have 65 insurance companies competing for that 6%. There has not been a significant growth in the last five years in that number. The uptake of insurance has not really increased. With the challenges that we are seeing within the sector in terms of credit, payments now being cash and carry, there are a lot of challenges to increasing that number. Compulsory insurance is in place by the government which everyone must partake in, but other than that, we are not seeing a big jump at the moment in the insurance space. There have been a lot of international companies who have come in now directly, not through intermediaries, having a presence in the Kenyan market. They see the potential there, but there are too many players in too small a segment of the market at the moment. As a result, there is a lot of undercutting and bad business practices that need to be looked at.

The situation is quite worrying here. What do you see happening in the future?

For the insurance market to be successful in Kenya, there needs to be some sort of consolidation. You cannot have 65 players in that space. The regulator is trying to do that by bringing risk-based capital requirements. Whatever insurance you are underwriting, you must have sufficient paid up capital to cater to that based on the risks you are taking. At the moment, you just have to have a paid-up capital as per the requirements and you can underwrite as much business as you want. But there are shortcomings there in the case of big claims and the like. The regulator is trying to force the situation and you can see in Kenya in the banks as well where they want the risk based or the capital requirements to increase. The only way that will happen is to get strategic partners or get the smaller companies to join forces through mergers and acquisitions. That is what we see happening within the industry. A lot of insurance companies also have huge capital requirements and whether they are solvent or insolvent needs to also be looked at.

What are your competitive advantages in the sector? What do you bring to the market that is different?

As a board we decided we already have a loyal base of clientele now and the key was what other services we can offer our clients. The first step was to go into securities, the stock exchange, and offer our clients opportunities to invest in the Kenyan Stock Market

At BTB, we have a track record of 25 years within the industry. We have primarily focused on the client. Firstly, we give the client the options available to them. We are not tied down to any individual insurance company. We are flexible and we will get them the best rate. The key is when it comes to claims settlement. It is very easy for everyone to sell insurance and take their commission. But the crux of the matter is when you have a claim. At that point in time, we use our expertise, our leverage, and our interactions with the insurance companies based on our relationships to ensure that our clients are settled and looked after. At the moment, the big issue in the industry is that once the rate capping came in for the banks, all the banks wanted to be in the insurance space, what they call bank assurance. So, the banks are pushing policies and as part of your loan you have to give the bank’s insurance broker your policies. It is very easy to sell it, but when the client has a problem, their car burns down, then what happens? No one is there to help you go through the settlement and get your claim settled. They have taken your business and they have taken their commissions up front and they have shown top line growth. But, as a client, what happens then? Clients have left us as they have gone shopping for rates, but at the end of the day, when it came to when they had a claim, they ended up coming back to us. That has always been our core selling point. That is the advantage of having a broker.

Compared to the other brokers, do you offer any other advantages?

We focus on the close relationship that we have with our clients. Our business has grown because of our clients and we have grown with them. We started off underwriting less than 100 million Shillings per annum in premiums and we are now underwriting 2.3 billion Kenyan Shillings which is larger than most of the insurance companies themselves in this country. It is because our clients have stuck with us and we have worked together with our clients that we have been able to achieve these numbers. A lot of our client base now comes from word of mouth and from our existing clients recommending our services and that is what has helped us.

What services do you provide?

As a board we decided we already have a loyal base of clientele now and the key was what other services we can offer our clients. The first step was to go into securities, the stock exchange, and offer our clients opportunities to invest in the Kenyan Stock Market. Later, we went to the Uganda, Tanzania, and Mauritian markets to give the clients exposure. We gave them not just exposure, though. Even in the stock broking field, when you as the client wanted to make investments, the brokers themselves who you were interacting with would just take your order. They would not give you that feedback and talk to you about your investments. We saw that as a space that we would be able to fill. We are offering personal wealth management advice now which includes investing in government securities as well. Thereafter, we saw a need for clients to be advised on how to run their businesses in a better and more strategic manner. That really happened when the market started tightening up with the credit crunch after the bank cap was introduced in this country in 2016. We started seeing holes in the businesses that thought they were doing well, especially when it came to cash flow and management of debt books. When things are going well, you can hide issues quite easily. But when things tighten up, problems become very apparent. We recently have been looking at offering consultancy services to our clients to help them streamline their businesses through this challenging economic period. Our latest venture has been into the asset financing space. Our clients had a need for capital requirements within their businesses or just for themselves. They were sitting on securities which the banks were unwilling to accept. So, in this last financial year, we acquired an already existing asset financing business and we have rolled that out now to our existing clients as a solution to help them.

Are these new spheres of business set to become a significant part of your operations?

Not as yet. With the end of the stock broking units that we were expecting to take off and the challenges the capital markets in this country have had over the last ten years, that line has not grown as much as expected. When I came back 13 years ago, there were a lot of IPOs happening in this country, such as KenGen and Safaricom. After that, very little happened. We thought that a lot of these businesses had reached a certain point and the next stage was to list. But that never happened. The reason when I look back at it now is that firstly, the capital markets did not give incentives for you to want to take your business to the stock market and give you incentives to list. There was also a 5% tax benefit where instead of 30% corporate tax, you would pay 25%. But that finished after five years. But by listing, your compliance requirements went up considerably so that only balanced out. There was no access to capital through that. That was where we saw the private equity space take up a lot of those transactions. As a result, the Kenyan Stock Market missed out on that space. The security business, which we have just taken on this year, is growing considerably. It makes up about 10% of our business, but that is within only one year. That is a space that I see continuing to grow. On the consultancy side, that has really just begun to take off in the past couple of years. With the challenges in the business environment at the moment, that will be a business that will also grow as we move forward.

What other non-insurance sectors are you present in?

Our family’s history has been in farming. My grandfather was a big coffee exporter and was in coffee farming in the 70s, 80s, and up to the 90s. As a family, there has always been an attachment to land. In the early 2000s, we got back into land and bought a 500-acre farm just outside of Thika. We are now farming 500 acres of citrus, mangoes, and we are trying a few other specialty crops. Obviously, there are challenges with farming as well. In the last couple of years, water has become a big issue. Our farm has full irrigation so that is helping us through that. But it is nice to have a green area. There has been so much development so it is nice to have some farming land.

Who do you sell to?

Currently, we sell in the local market, not the export business. This is more of a family passion to be in farming and land. We have not really looked at the export side of the business. As the trees get older and the crop gets more consistent, it is something that we could look at in the agribusiness sector.

Are you active in the real estate sector?

We have small real estate projects and small investments around Nairobi. About 7 years ago, we went into a big project called Albizzia Downs Ltd with three other partners. This was a 600-acre coffee farm just outside of Thika Town. We sold land there. Our primary investor there was Safaricom, the M-PESA Foundation, and they have put up their 75-acre M-PESA Academy there which is now a leading school. We then sold 100 acres to Oshwal Education & Relief Board. They were planning to put up a university, but that has not happened as yet. We also sold 150 acres to light industrial development. We are left with the housing plots which are about 200 acres. There was a downturn in the market so we were not desperate to sell them. But they are fully serviced and we are set to roll them out as the economic situation improves. What is interesting about that project is that because it was a coffee farm for over 100 years, it is full of indigenous forests. Unlike other housing developments or multi-use developments, we did not want to lose that aspect of the project. If you go onto the project, you actually have 30 acres of forest that has been maintained. Whoever buys land has access to those forests. The project is also incorporating lakes within it using the drainage systems. It is a very green project. We did not want to use 50 acres for a golf course. We wanted to keep that 50 acres of indigenous forest because in that part of Kenya there is no indigenous forest of that nature left. It gives a greener outlook to the project.

What is your hotel project?

Recently, in the last two years, we acquired a hotel in Shela township in Lamu. It is a small boutique hotel with 11 rooms which we are expanding. Tourism in Kenya has gone through challenging times, especially on the coastal region. However, we saw an opportunity in Lamu with the development of the port. Also, the clientele in Shela and Lamu is very different. There are a lot of expats and European clientele who like it. For us, it is interesting as a hotel project but also as a land investment. It is an island and as such, there is not much space for additional development. It has a very village-like feel to it. If you look at big European cities and islands in general, when you run out of space, there is no more. You cannot develop large projects there. It is regulated and a World Heritage Site as well. Obviously, the hotel and tourism markets are extremely challenging in terms of the reports that get released from the country, especially with the Al-Shabaab attacks and such. Anything linked to the Kenyan coast becomes affected.

Are you looking to attract investors or shareholders?

As a family and growing our businesses moving forward, we understand that our capacity is limited up to a certain point. Obviously, we are looking. If there are opportunities on the table to have discussions, and we have in the past, it has to be something that fits the ideology of the family and the way that we want to move forward. In the past, I have seen other family businesses that we work with have challenges when new investors come in. It is about finding the right fit for us.

Are you looking for technical partnerships?

On the insurance brokerage side, we teamed up with Nasco out of France to try to get that technical expertise and grow that business line in a different manner. Also, with the Albizzia project, we worked with some developers from outside the country to take the project to the next level.

Project yourself to the medium term, three years’ time. What do you want to have achieved?

As a group, we want to be a one stop shop for services for our clients. When you walk in the door, not only do you get insurance, you will get any other service that you as a client would require. We are focusing on offering additional services to an already existing client base.

Who are these clients?

Our clients are predominantly Asian family businesses. We do have a few international clients. We have worked with and built those business relationships but within that client base there is a huge challenge. In the next few years, we are succession planning. It is a big issue with manpower. We are doing a lot of things, but as a family team, there are only four or five of us trying to manage all these things. How will we cope if something happens to my uncle or my father? As a group, how do you prepare for that? That is the critical point for us at the moment. We need to train the younger generation in the way that they can handle and maintain these relationships because it is a relationship business.

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