Trends Reshaping Africa’s Insurance Sector

CONTINUED from last edition

The Market performances

West Africa

In both Anglophone and Francophone West Africa, non-life insurance is the dominant insurance type, with this product comprising 70% and 56% of the entire market in the respective regions. Anglophone West Africa has an extremely low insurance penetration rate of 0.3%, compared to 1.2% in Francophone Africa, according to McKinsey data.

The insurance oversight body, Conférence Interafricaine des Marchés d’Assurances (CIMA), was established in 1992 to improve the insurance process in the sub-Saharan region. By creating a single regulatory structure, the CIMA has been beneficial in promoting stability and encouraging professionalism in the industry. Yet, having a single system of regulation for 15 countries, located across the breadth of Africa, establishes a one-size-fits-all policy for a diverse range of markets, leading to some member states facing a complex framework.

“Nigeria and Ghana, in West Africa, are important hubs – particularly given the size of their economies – however, much of the rest of West Africa is constrained by onerous and inflexible regulatory approaches under CIMA,” says Jeremy Gray, Principal of the Cape Town-based Centre for Financial Regulation and Inclusion (Cenfri).

“Whilst the CIMA zone may enable somewhat easier movement for insurers across countries, in practice the level of bureaucracy required to adapt [to] rules often holds innovation back amongst member countries,” he adds.

Despite the economic power of Nigeria and its growing middle class, life insurance in the country stands at just 0.1%. Due to the low rate of insurance in Africa’s largest nation of more than 200m people, major opportunities exist for this low penetration rate to grow substantially.

Expanding the availability of sharia-compliant takaful insurance products is one potential avenue to achieving development in the industry. Directly targeting formally employed people to increase insurance uptake could help grow this relatively untapped segment, with only 10.6% of this group of Nigerians possessing an insurance policy.

Ghana may not be the biggest insurance market on the continent, but its current situation is largely underdeveloped, with 51 insurers making up less than 3% of total financial sector assets and serving just 6% of adults with a non-health-related insurance product. According to analysis by Cenfri, close to 5.5m further adults could potentially be served with insurance in Ghana.

Several deals have been struck in recent years to expand insurance penetration in Ghana, with insurance firm Hollard Ghana partnering with retailer, Melcom Ghana, to offer insurance through in-store Hollard-on-the-go booths.

North Africa

Insurers targeting countries in North Africa face different challenges from those seeking to reach customers in sub-Saharan Africa. While penetration rates are higher in North African countries than sub-Saharan African nations, at a global scale, they remain lower than the rates found in Western and Asian countries.

Building on solid financial growth in recent years, Morocco’s insurance sector has a positive outlook. Non-life premiums make up a 55% market share and are growing at a rate of 3.9% per year, much faster than life insurance. The most recent statistics show that life insurance premiums fell slightly by 0.2% last year, to $2.2bn, compared to non-life premiums, which reached a total of $2.8bn last year.

Growth is also expected to come from takaful (Islamic insurance), as Morocco’s parliament approved a law in 2019 that allowed takaful subsidiaries to be launched by insurance companies.

Egypt’s insurance industry is also set to record strong growth of 16% this year as micro insurance products expand the market, and travel insurance premiums increase. Insurers in this country are also leveraging the benefits of innovative technologies to offer flexible policies to customers.

In Tunisia, compulsory insurance for auto liability and various property-related insurance policies has supported limited growth in the market, but it remains a challenge for both conventional and digital firms to interest citizens in products that are not directly mandated by law.

As a result of the compulsory insurance, a great deal of the population seek out the lowestcost products that meet the legal requirement, and not the most appropriate policies for their needs.

There are no restrictions on foreign compa

nies entering the Tunisian insurance market, with new foreign insurers simply needing to register with the General Insurance Committee; once approved, they are able to compete on the same terms as local firms.

East Africa

Kenya’s insurance market is one of the most robust in East Africa, with the sector experiencing growth every year since 2013. Despite the track record of growth, insurers have experienced diminishing returns on their equity due to a mix of tight margins, slow premium growth, and insurance fraud.

As the top five non-life insurers in Kenya account for 38% of the overall market, consolidation may be a possibility in the future to improve economies of scale and reduce some of the fragmentation found within the sector.

“East Africa is emerging as the most vibrant fintech hub on the continent, aside from South Africa. Political buy-in, a track record of successes, such as with mobile money, and a fairly good skills base mean countries like Kenya, Uganda and Rwanda are amongst those with the greatest innovation taking place,” explains Gray.

The Ugandan insurance market currently has an uptake of 1.4%, with a new Insurance Act being introduced in 2018 that expanded the Insurance Regulatory Authority’s (IRA’s) mandate. As part of this mandate, market development and innovation are promoted, with the pandemic leading regulators to shift their approach.

Many insurers were immediately faced with the need to digitise their operations as lockdown came into effect. While some had already begun their digital transformation journey, the more traditional firms that had not invested in cuttingedge technology saw disruption to their operations.

Regulators adapted their strategy to incorporate the new normal into the framework and ensure the most appropriate mechanisms were in place to encourage innovation and support insurers as they capitalise on the opportunities to modernise.

As Rwanda was the first African nation to implement a national lockdown due to the Covid pandemic, their insurance market was one of the first on the continent to feel the impacts of this dramatic change. During this first lockdown, the government of Rwanda did not consider insurance to be an essential sector, which led to an almost complete decline in physical insurance services. While this abrupt closure of operations for many insurers is set to have a negative shortto-medium-term effect, the market fundamentals of the country indicate that it will create a delay in growth rather than a substantial decline.

South Africa

The insurance sector in South Africa is by far the most advanced and developed market across Africa. With a gross premium amount of $48.3bn that accounts for over 70% of the entire African insurance market, life insurance policies comprise the majority of South Africa’s insurance products, with 80% of premiums being related to this area.

An innovative use of technology forms the basis of the South African insurance market, with citizens responding well to purchasing the insurance they need through digital platforms. Not only have insurers found that automation and digitisation of the entire insurance process brings costs down, it also offers a more seamless experience for customers.

South African Insurtech start-up Naked is one of the leading African innovators in the insurance space. Since entering the market in 2018, this digital-only insurance platform has offered immediate coverage for homes and vehicles, as well as individual items. Unlike the often complex and unintuitive process of buying insurance from conventional financial providers, Naked uses AI and automation to reduce costs and improve the user experience. The strategy taken by other nascent insurers can also be replicated by firms in other African countries.

“The approach of Discovery in South Africa is a powerful model to learn from across markets – by integrating tangible short-term benefits, rewards and encouraging risk management behaviour leveraging IoT technologies (like smart watches and telematics in vehicles) they have, for many consumers, elevated themselves beyond simply an insurance provider and built far greater trust than more traditional providers,” says Gray.

International insurers also have a strong presence in South Africa, increasing competition in the industry.

The Covid crisis has acutely impacted South Africa’s insurance sector, with the country already facing a downgrade of their credit rating and a damaging recession. According to analysis by McKinsey, the combination of these factors will see a sharp decline of 15% over the next two years in the gross written premiums (GWP) paid by citizens, with life insurance seeing a reduction of 18%.