The majority of people on the African continent have to bear various financial burdens which can be attributed to factors beyond their control. The world’s insurance industry is dominated by insurance companies all vying for a piece of African slice. The African continent has over a 1 Billion people in 54 countries and yet there are low levels of uptake in insurance among the low-income population. This state can be attributed either to the lack of knowledge about insurance products and to an extent misunderstanding of the concept of insurance accounts. Most Africans cannot afford insurance premiums just yet. Mostly is a choice between fulfilling a basic immediate need versus signing a long term beneficial need, in this case insurance. However, there are tremendous growth and opportunities which the continent has for the insurance companies, globally. Tapping into this industry, surely rewards the brave.
The world’s insurance industry is dominated by insurance companies of developed countries. A study in 2014 by KPMG reported that G7 countries (Canada, France, Italy, Japan, United Kingdom and the United States of America) accounted for approximately 65% of the world’s insurance premiums – yet cover just over 10% of the world’s population. In comparison, a report by CNBC Africa highlighted that the insurance market in Africa is highly underdeveloped with only 3.5% of the African market being insured. This status quo, with many first world countries being inundated with insurance firms and African countries being underrepresented, has led to many insurance firms identifying Africa as a lucrative continent full of growth opportunities.
Most Africans cannot afford to take up insurance, whenever it suits them. Only access to insurance products starts to increase in the upper middle income brackets with insurers targeting only 5% of those eligible. With Africans facing dire poverty on a day-to-day basis; shortage of basic needs; the instability of most African economies – insurance is but still a long shot away to be embedded in Africans mind-set, as a basic need for unforeseen future circumstances. Insurance uptake is at its lowest in Africa and this can be attributed to factors such as lack of capital and expertise to tap into the market; lack of intelligence which makes it difficult to assess and qualify people’s creditworthiness; state of poverty for most Africans; antitrust sentiments towards financial services providers; lack of effective, transparent, honest legal and judicial systems; shallow financial markets; and a common usage of informal forms of insurance rather than a more traditional services of formal insurers.
The insurance penetration ratio which is the gross value of insurance premiums as a percentage of Gross Domestic Product (GDP) – is often used as a measure of how deep a country’s insurance market is. A 2012 report by Swiss Re global insurance document, stated that total premiums in Africa alone, amounted to US$71.9 Billion – which translated to a penetration rate of 3.65% as compare to global average of 65% – with each African having paid an average of $664 in insurance premiums during the same year. South Africa though can truly be considered to have a well-developed insurance market both in the life and non-life insurance segments. South Africa has a penetration rate of 14.2% which positions it as one of the highest in the world by a KPMG report. This surge has led to other South African leading insurance companies making positive inroads into the untapped market by shifting their scope into African countries.
- In 2012 – South Africa accounted for $54.9 Billion of Africa’s $71.9 Billion worth of insurance premiums, which left the continent with $17 Billion worth of insurance premiums – which translated to the penetration rate of a mere 1.04%. The only other African countries with penetration rates of above 3% were Namibia (7.50%); Mauritius (5.78%); Botswana (3.17%) and Kenya (3.17%).
- In February 2013 – Sanlam announced its entry into the Nigerian insurance market – through its associate company FBN Life Assurance, which acquired a controlling interest of 71.2% in Nigeria’s listed short term insurer, Oasis Insurance. Sanlam also set aside R3 Billion for Africa expansion appetite and announced that it had bought the majority stake in the largest insurer in Rwanda, Soras Group.
- In December 2013: Santam and Sanlam Emerging Markets entered into an emerging markets partnership with an aim of expanding both parties reach into other African regions.
- Similarly, Africa’s biggest insurance company, Old Mutual Investment Group had set aside R5 Billion for the next three to five years (2016-2021) in order to increase its reach into Africa.
- During June 2014 – Hollard Life Zambia entered into a partnership with MTN Zambia with the aim of bringing affordable insurance within reach of everyone.
- The acquisition of Guardrisk by MMI gave the company access to 12 active African markets, thus cementing their ambitions of expanding further into the African continent. Also MMI reportedly spent R300 Million on acquiring Kenyan short term insurance company, Cannon Assurance.
Insurance Growth Opportunities in Africa
Africa has massive opportunities for life and on-life insurers and according to the insights gathered by Legato Consultancy, the following regions highlight the growth insurance market potential currently available in the Africa continent:
- Angola: remains significantly underdeveloped and has immense potential for growth. Insurance is still dominated by the oil industry. It is expected that many people will be uplifted to the middle class as a result of the GDP and government’s enforcement of the compulsory 3rd party motor vehicle insurance.
- Nigeria: 60% of insurance premiums are derived from the energy sector. Of the 169 million Nigerians in 2014, only 2.25 million had active insurance. The market is also dominated by 59 insurers all targeting the market share with penetration levels as far below as 1%.
- Ghana: the insurance market is seen positive growth and upward trajectory, with business insurance and life insurance taking the lead. The country has 45 registered insurers with 19 operating in the life segment. The development of the oil and gas sector and a positive economic outlook set to boost the insurance industry. Funeral insurance remains largely untapped in Ghana and funeral costs in the country can cost up to $20 000 and averages about $6 000.
- Morocco: has the second largest insurance market in Africa. 4 companies dominate the market underwriting 70% of the risks. 13 smaller companies share the remaining 30% of the market. The continued success of Morocco insurance industry is largely attributed to a well-developed banking system; government positioning towards foreign direct investment and also the government’s active role in encouraging foreign companies to set up offices in their country.
- Egypt: despite a well-developed financial sector – insurance penetration rates still remain below 1% due to Islam being the dominant faith and growth in the private sector being stifled by the state owned enterprises.
- Namibia: is among the better developed in Africa, boosted by foreign direct investment and a greater portion of wealthy citizens contributing to good sustainable growth.
- Botswana: there are 21 short term insurers and 7 life insurers dominating the insurance market. Life insurance premiums accounts for 67.8% of the annual $460 million gross written premiums. Botswana Insurance Fund Management and Botswana Life (both subsidiaries of Botswana Insurance Holdings Limited – with majority shareholder being Sanlam) are dominating the life insurance industry. Absa Life, Momentum, Regent Life and Liberty Life are also active in the Botswana insurance sector.
- Mauritius: 12 non-life and 7 life insurance companies dominated the market towards the end of 2012. Top 5 non-life companies have 80% market share. Bai is the largest life insurer with a whopping 43.5% market share plus a penetration rate of 5.8%.
- Kenya: the market is dominated by the non-life segment which accounts for 66.2% of the insurance premiums and major contributors being motor vehicle insurance. Medical insurance accounts for 22.1% and property insurance accounts for 10% of all written premiums. Kenya’s success has been attributed to its drive for innovation and according to the Business Monitor International – Kenyan companies have been more innovative than those in other African countries. There are 47 registered insurers operating in Kenya and only the one’s with innovative insurance products capture and survive in the insurance markets.
- Zambia: insurance market is underdeveloped with a penetration rate of 1.3% and total premiums equivalent to US$20 per capita. The sector is dominated by 23 insurance companies as of October 2013, of which 8 were life insurers and 15 provided non-life insurance.
Africa has been known as a natural commodity and mineral resourced continent, but with the advent of technology and rapid globalisation movements, this is set to change. Other markets have and are continually emerging in the continent. Insurance is one – due to the fact that it is still a relatively unknown concept and industry in most African countries. However, there is a silver lining in the dark cloud, of lately; Africans have been supporting the idea of a booming African insurance market. Positive factors such as the following supports this statement: a low insurance penetration rate means high growth opportunities and potential; the continual growth of international investments; high demand of insurance products by multinational/international investors; growing awareness of the need, urgency and importance of insuring against natural disasters and finally, insurers benefiting from positive changes in the regulation and compliance systems.
In conclusion, although expanding into the African insurance market is potentially highly lucrative, there are high risks to embrace as well. Africa’s insurance industry has potential for growth and if properly assessed can deliver profitable returns for insurance firms. The ultimate goal of entering the African insurance market is to pursue and ensure profits for shareholders, sustainability and longevity of the insurance firm’s business. A thorough due diligence/risk management/in-depth research (all expertize of Legato Consultancy) needs to be properly executed prior to pursuing expansion opportunities into the untapped markets and African countries. Insurance companies need to conduct a thorough assessment on the plausibility of the market, taking into cognisance the restriction to operating and market entry, controls and uncertainties which are highly inherent in insurance regulations in African countries.
There is substantial scope for future development and growth of the African insurance market, however, these comes with relatively high levels of risks. Companies also need innovative ways that would entice consumers and devise newer strategies to penetrate even the stubborn of insurance markets – taking into consideration that most people in the African continent are still very poor and not yet convinced of the benefits insurance products offer and hold. Africa has and continues to improve in business environments and governments have become more welcoming to foreign investors and with the advent or constant reiteration of the Africa rising narrative – it has become evident in the direct link between level of GDP per capita and insurance penetration. Insurance companies looking to expand their offerings into other African countries, need to identify, weigh their appetite versus perceived opportunity and inherent risk for great rewards and benefits.