In­sur­ers tar­get Africa for growth and mar­gins

RISKAFRICA Magazine - - CONTENTS -

The South African life and short- term in­sur­ance mar­kets are rel­a­tively ma­ture, with few ob­vi­ous merger and ac­qui­si­tion op­por­tu­ni­ties.

While some re­gard the African con­ti­nent as a risky in­vest­ment, KPMG’s In­sur­ance In­dus­try Sur­vey 2012 re­vealed that Africa is on course to be a global in­vest­ment sweet spot. Fo­cus on in­fra­struc­ture, di­rect for­eign in­vest­ments, im­proved bank­ing su­per­vi­sion and pol­icy up­takes have all re­sulted in Africa show­ing a po­ten­tial GDP growth fig­ure of $2.6 tril­lion by 2020.

In its an­nual re­view, the South African In­sur­ance In­dus­try Sur­vey 2012, pro­fes­sional ser­vices com­pany KPMG re­leased 54 of the 164-page doc­u­ment for comment to­wards re­view­ing in­sur­ance in other African coun­tries.

KPMG part­ner and national head of in­sur­ance Ger­dus Dixon says, “The South African life and short-term in­sur­ance mar­kets are rel­a­tively ma­ture, with few ob­vi­ous merger and ac­qui­si­tion op­por­tu­ni­ties. It is also com­pet­i­tive, well reg­u­lated and, in all like­li­hood, fac­ing on­go­ing chal­lenges re­gard­ing reg­u­la­tion such as SAM, IFRS Phase II and Treat­ing Cus­tomers Fairly.”

KPMG’s head of trans­ac­tions and re­struc­tur­ing, John Geel, noted sev­eral new in­vest­ments into and across Africa, es­pe­cially from multi-na­tion­als and larger listed African com­pa­nies. How­ever, an in­creased num­ber of smaller com­pa­nies are also in­vest­ing due to the im­proved growth op­por­tu­ni­ties, as well as reg­u­la­tory and tax regimes. “This means that com­pa­nies are now seek­ing out the right en­tity to trans­act with, ne­go­ti­ate de­tails of col­lab­o­ra­tion and sign le­gal con­tracts,” says Geel.

African coun­tries present in­sur­ers with new, un­tapped mar­kets with mas­sive po­ten­tial cus­tomer pop­u­la­tions and bur­geon­ing eco­nomic growth, which was fore­cast by the In­ter­na­tional Mone­tary Fund to be 5.5 per cent this year. “Nige­ria, Ghana and An­gola’s growth rates are al­ready in ex­cess of this,” says Dixon.

He be­lieves that re­fer­ring to th­ese African coun­tries as the new fron­tier is in­ac­cu­rate, as most of the ma­jor play­ers have al­ready flown the coop and are ac­tively po­si­tion­ing them­selves for dom­i­nance in Africa.

Africa has ap­petite to thrive, but is no short-term so­lu­tion

Apart from this in­creased ap­petite for in­vest­ment, KPMG has no­ticed a hunger for con­sol­i­da­tion and ex­pan­sion and a rapid im­prove­ment in the bank­ing sec­tor on the con­ti­nent. KPMG Africa re­leased the Africa Bank­ing Sur­vey in May to pro­vide a bet­ter un­der­stand­ing of reg­u­la­tory frame­works. Four­teen coun­tries were an­a­lysed in the re­gion, pro­vid­ing in­for­ma­tion in sev­eral ar­eas in­clud­ing the com­mer­cial, le­gal and tax and bank­ing en­vi­ron­ments, as well as gov­er­nance and re­port­ing is­sues.

How­ever, Dixon warns in­sur­ers against ex­pect­ing African coun­tries to pro­vide them with short-term growth so­lu­tions. He says that it is es­sen­tial that each African coun­try is un­der­stood and as­sessed on its own mer­its and that the di­ver­sity and sub­tle nu­ances play a crit­i­cal role in un­lock­ing the se­crets to busi­ness suc­cess.

“Africa’s gross do­mes­tic prod­uct is ex­pected to reach $2.6 tril­lion by 2020, but ex­pand­ing into African coun­tries is not a short-term growth fix, it will take deep pock­ets and com­mit­ted sus­tain­able long-term busi­ness plans to de­velop the in­sur­ance mar­ket in th­ese African coun­tries, par­tic­u­larly the much vaunted re­tail or in­di­vid­ual life in­sur­ance mar­kets,” says Dixon.

He adds that it is im­por­tant for share­hold­ers to un­der­stand the re­turn pro­file of ex­pand­ing into Africa, as those com­pa­nies that do un­lock the po­ten­tial, stand to ben­e­fit from im­proved mar­gins on prod­ucts com­ing from the fastest-grow­ing em­ployed pop­u­la­tion on the planet. “There are 500 mil­lion peo­ple of work­ing age in Africa and the ex­pec­ta­tion is that this will out­num­ber China and In­dia by 2040.” De­spite the fi­nan­cial cri­sis of 2008, there is now more pri­vate eq­uity avail­able in Africa. In­sur­ance gi­ants Leapfrog, San­lam and Old Mu­tual re­cently an­nounced in­sur­ance ac­qui­si­tions into African mar­kets. But many chal­lenges to do­ing busi­ness in Africa still ex­ist, in­clud­ing the short-term in­sur­ance mar­ket, which is spread across 55 coun­tries, many of which do not have large-scale busi­ness present in them. Also, due to a sur­plus of in­dus­try play­ers in some coun­tries (like Nige­ria and Kenya), pre­mium is frag­mented.

Dis­tri­bu­tion chan­nels re­main a ma­jor chal­lenge in Africa. In­sur­ers will have to em­brace mod­ern and al­ter­na­tive mod­els that are able to con­nect prod­ucts with in­sur­ers in a re­li­able and cost-ef­fec­tive man­ner.

The ex­ten­sive African sec­tion of the re­port pro­vides some three to four pages of de­tail on each of 13 African coun­tries, high­lighted by the in­sur­ance team at KPMG as sig­nif­i­cant to the in­dus­try. “Ex­plor­ing ex­pan­sion op­por­tu­ni­ties on a generic African tem­plate is not ad­vis­able and will prob­a­bly re­sult in ex­pen­sive ‘school fees’ for com­pa­nies if they do,” says Dixon. “Africa is sim­ply too big and grow­ing too rapidly for in­sur­ers and in­vestor to ig­nore.” Nat­u­rally, the un­der­de­vel­oped for­mal econ­omy and in­fra­struc­ture will de­mand more in­ven­tive so­lu­tions with re­gard to strat­egy, prod­uct de­sign and dis­tri­bu­tion.

Ex­perts at the sixth KPGM Africa Con­ver­sa­tions Se­ries on trans­act­ing in Africa held in Jo­han­nes­burg ear­lier this year reckon that dis­cus­sions around the re­al­i­ties of con­duct­ing busi­ness on the African con­ti­nent are now at a crit­i­cal stage and sup­port is needed to boost this de­vel­op­ment.

Dis­tri­bu­tion chan­nels re­main a ma­jor chal­lenge in Africa. In­sur­ers will have to em­brace mod­ern and al­ter­na­tive mod­els that are able to con­nect prod­ucts with in­sur­ers in a re­li­able and cost-ef­fec­tive man­ner.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.