With poor performance of many economies across Africa in the past year in terms of economic growth, job creation and infrastructure development, there are worries if the sustainable growth being seen in most parts of the continents in insurance sector will be sustained.
Analysts believe that unless there is the political will to bring real changes in the different economies that will engender economic growth, infrastructure development and expansions, we may soon see drop in growth different markets.
Africa’s insurance and reinsurance markets as at the end 2015 had continued to attract close scrutiny and rising interest from financial market participants around the world. These include the mature markets of the United States and Europe, which have historically had a presence on the continent, as well as newer entrants from emerging BRIC (Brazil, Russia, India and China) countries. In addition, regional cross-border activity with Africa-based insurance groups buying other regional insurance companies has created a vibrant landscape.
Insurance markets in Africa are comprised of 54 different countries of varying economic, political, geographic and cultural diversity. Taken as a whole, Africa has a combined gross domestic product (GDP) of approximately $2 trillion, which is nearly equivalent to that of Canada and greater than Australia, both resource-based economies.
A number of African economies are growing by 5 percent to 10 percent and more, much faster than the mature markets, with drivers such as energy, construction and mining projects. This has made them attractive to insurance groups in the United States and Europe, where growth has been more limited.
Africa Non-Life & Life market
Including the size of the life sector, the balance in terms of lines of business and the extent to which motor dominates the non-life sector. South Africa stands out as 80.5 percent of its total insurance premium originates from life risks. The strong demand for life business results in total insurance premiums in South Africa representing 14.1 percent of GDP – exceeding insurance penetration in European countries.
In terms of insurance penetration, Kenya and Morocco (with levels of 3.2 percent and 2.9 percent, respectively, are comparable to some developed markets in Europe as well as Brazil and China. They are followed by Angola, at 0.9 percent penetration.
The rest of Africa has historically had very low demand for insurance. In particular, Nigeria and Egypt are considered underinsured, given their large populations of 174 million and 85 million, respectively.
The demand for insurance in Africa has continued to increase in line with economic growth. The seven largest insurance markets in Africa saw total premium increase by 8 percent in 2012 to $ 64.3 billion, with Kenya and Algeria experiencing double-digit percentage growth of 24.5 percent and 16 percent respectively.
Insurance markets are growing from a low base, although still expanding at a faster rate than more mature markets, which has made them attractive to foreign participants.
Morocco was an exception with a 3.3 percent contraction in total premium as economic performance failed to meet expectations because of a decline in grain production, and reforms that were deferred following the election of the Justice and Development Party (PJD).
Notwithstanding South Africa which has a very mature insurance market, many insurance markets on the continent are underdeveloped, but a number of initiatives have arisen to promote the insurance industry.
These include the recapitalisation of insurance companies and organic consolidation, the education of consumers to ensure greater public confidence, better enforcement of compulsory insurance, the establishment of guaranteed and/or insurance protection funds, improving distribution channels, and stronger reporting and regulation through the application of core principles as outlined by the International Association of Insurance Supervisors (IAIS), as well as other best practices agreed upon as global standards in the industry. In addition, domestication, or local content initiatives, whereby a minimum amount of risk must be retained in the country, are also helping to promote insurance markets’ growth, though retention levels are often unrealistic.
The attraction of Africa’s insurance market lies in countries with large, growing populations and strengthening economies where the general market is relatively untapped among consumers, as well as a perceived shortage of underwriting expertise in areas of specialised risk, such as oil and energy, and aviation.
As a result, continued development of the insurance industry in Africa will require outside as well as home-grown expertise. Insurance growth is expected to increase in line with economic growth, but this depends on product offerings and distribution becoming more accessible and aligned with cultural demands. These include micro insurance products as well as Takaful, or Sharia-compliant insurance products in certain countries such as Sudan, Egypt and Senegal.