Hello,
You should check the latest Diagnostic Agent with SWPM Setup Guide (2016), specifically the section describing how you may want to download archives indivudally (SAPEXE, SAPHOST, etc.). The error tells you that the SAP Host, Diagnostic, etc. versions are not high enough for the Kernel.
Do as follow:
1) Download the required files (SAPHost, SAPDiagnostic, SAPJVM) individually from Marketplace = latest version!!
2) Re-run SAPinst and browse to the individual files directly when defining parameters; don't type anything in the Basket Location
3) Click next, the step will be successful