Among the drivers of economic growth and development in emerging markets, insurance is often overlooked in favor of more noticeable sectors such as technology or infrastructure. In reality, however, insurance is a behind the scenes factor driving growth at all levels of society, from family life to massive infrastructure projects to technology development. As discussed in my new report, expanding Africa’s lucrative insurance market can be key to creating inclusive prosperity in the region.
In particular, the increasing insurance penetration rates in the African markets are directly related to the overall development of Africa: As Das, Davies and Podpiera (2003) show, insurance can have positive effects on growth through six mechanisms: improving financial stability for companies and households; Mobilizing savings for public and private investment; Reducing pressure on the government to provide public goods such as pensions; Promoting trade and entrepreneurship; Risk reduction and improved diversification; and improving social living standards. Other scientists have identified insurance premium thresholds associated with positive economic growth in Africa. Studies by Universal Health Coverage (UHC) in Rwanda showed that higher school enrollment was associated with higher use of health facilities and a higher presence of qualified obstetricians.
Expanding the lucrative insurance market in Africa can be the key to creating inclusive prosperity in the region.
Despite these benefits, Africa’s aggregate insurance penetration rate was only 2.78 percent in 2019, compared to the global average insurance penetration rate of 7.23 percent. As traditional insurance companies and new microinsurance companies (as well as reinsurance companies) enter, participate and expand, the growth potential across the continent is immense. Recent disruptive events – including an increasing number of natural disasters, political upheavals, and economic disruptions from current and future pandemics – will continue to increase demand and fuel rapid growth in this sector, especially in digital insurance platforms.
What does the insurance market in Africa look like today?
The insurance sector consists of three sub-categories: life insurance, non-life insurance and reinsurance. The African countries have grown at different speeds in each of these market segments and follow their own different growth patterns. For example, South Africa’s market is dominated by life insurance premiums, while other countries such as Kenya, Nigeria and Tunisia have a much higher premium volume for non-life insurance than life insurance premiums.
These patterns suggest future trends and indicate huge, untapped markets for companies looking to offer insurance products that are both affordable and well suited for the mass market. In fact, only five countries host about 84 percent of the continent’s total estimated insurance market value of $ 68.15 billion. South Africa leads with around 70 percent of the total market share, followed by Morocco, Kenya, Egypt and Nigeria. In most other African markets, however, the penetration rate remains below 2 percent.
In particular, the market penetration of life insurance has been slow due to the demand for specialized risk management capabilities and heavy investments in security and information gathering, thereby fragmenting the sector and making it dependent on foreign investment. Five countries (South Africa, Morocco, Namibia, Kenya and Egypt) comprise 92 percent of the life insurance market on the continent. Although McKinsey has expressed concern that the South African life insurance market is losing ground in the face of the COVID-19 crisis, the low market penetration combined with the expected higher consumer and business spending by 2030 will continue to create many opportunities in less developed markets across the continent .
The key to the growth and expansion of the sector is the region’s rapidly growing middle class, which can find greater budgetary stability, particularly with life insurance. As this population group becomes increasingly aware of the value of insurance to their homes and businesses, they are more likely to be inclined to spend more of their disposable income on insurance: higher incomes, according to a 2016 Ernst and Young study of African insurance companies households and businesses were the main reason for higher insurance premiums.
The pandemic presents an opportunity in the form of consolidation: unsustainable and inefficient players can be pushed out of the market, facilitating innovation, healthy competition between thriving businesses, and better coverage. Other experts assume that commercial insurance for companies will exceed growth in individual insurance coverage in the next year, also due to rising reinsurance rates. The pandemic has also accelerated the digitization of local insurance companies and, in the long term, opened the door to a more accessible and inclusive insurance industry that could be fueled by a conducive political environment.
Technology adoption and innovation are keys to growth in the African insurance industry. Microinsurance could also change the name of the game as it can reach Africa’s emerging middle class through small, inexpensive, low-risk products. MicroEnsure, who works with telecommunications companies, is an example of a successful microfinance company that offers basic health and life insurance protection through a free add-on to customers’ existing cell phone services. In addition, micro-health insurance products like Jamii have emerged, providing affordable insurance coverage for low-income populations. Health financing has also changed radically thanks to mobile and online platforms: M-Tiba is facilitating the digital management of statutory and private health insurances through partnerships with governments and providers.
Policy recommendations for risk management
Recognizing the role the insurance market can play in development, African governments are also working to improve the regulatory climate for insurance investors. Diversification, partnership and overarching collaboration between insurers and banks is the basis for achieving economies of scale and increasing revenues for both sectors. These partnerships, coupled with accelerated digitization on online and mobile platforms, have the potential to increase cost efficiency and profit margins across the African insurance sector – and to completely transform the insurance industry.
Africa’s underdeveloped insurance market presents an opportunity for both insurance players and African society in general.
While there are many opportunities, there are also risks and challenges for the industry to address, including COVID-19 and future pandemics; a decentralized cross-border market with regulatory barriers; Enforcement gaps; a lack of technical human capital; low demand for insurance; and market volatility. Fortunately, investment mitigation strategies can help overcome these hurdles: for example, companies need to invest in both human capital (education and training of qualified personnel) and information technology, adapt to market trends and adopt innovative strategies. Business partnerships must focus on enhancing product differentiation, working with government to close regulatory loopholes and barriers, and increasing product awareness in the marketplace.
Africa’s underdeveloped insurance market presents an opportunity for both insurance players and African society in general. The first credible and convenient insurance providers will benefit enormously from the development of this sector and will become pioneers in the region. In addition, African households and businesses can benefit from the lower risk and increased stability that insurance products can offer.
source https://dailyhealthynews.ca/capturing-africas-insurance-potential-for-shared-prosperity/
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