The insurance industry in Sub-Sahara has been described as overburdened with complex and challenging regulations, that posses some kind of difficulty for multinational companies to operate in.
Experts said that the regulation, which seeks to protect local insurance players, is committed to building local capacity and conserving premium within the region.
Experts at Marsh, said the insurance regulatory environment in Sub-Saharan Africa is ever-changing and the opportunities and risks within this region have become quite complex over the last few years.
“While the share of global premiums generated on the continent is likely to continue to increase, managing businesses in Sub-Saharan Africa brings with it its fair share of challenges. These include addressing difficult investment and regulatory environments, economic and geopolitical uncertainty and social and technological developments, says Marsh, global insurance brokers and risk management experts.
In the field of risk management, insurance has become universally recognized and accepted as an efficient solution to the myriad of risk-related issues facing multinational companies. Insurance is a key requirement for every type of business as it permits businesses to recover quickly from adverse events.
Indeed, it is acknowledged that, for a modern economy to prosper, it is imperative to ensure the active support of a disciplined and viable insurance industry.
Liberalization of cross border trade, the need for increasing business and capital efficiency, advances in Information Technology and the integration of world financial systems now provide unparalleled opportunities for multinational companies. With the African market now open to global economic activity, these developments have created new opportunities for the insurance industry in Africa. This also means a new set of challenges for insurance regulation in Africa.
Regulation of insurance in Africa is conducted through various domestic regulatory bodies which aim to oversee insurance activity within each country. Regulatory bodies and associations, therefore, ensure there are minimum professional and legal standards in place, supported by compliance functions, to ensure adherence to local regulations and good governance.
Apart from the development and maintenance of efficient and stable insurance markets, other key objectives of regulating the insurance industry include promoting employment, creating a fair and safe market for profitable insurance business transactions and providing adequate protection for local policyholders.
Insurance regulation in Africa is largely compliance-based. A ‘one size fits all’ approach has been adopted, where the same set of rules is applied to all. This is a costly approach in terms of finance, manpower and time as insurers have to employ large numbers of administration staff, with such costs ultimately passed onto policyholders in the form of premiums.
Among the most significant challenges faced by multinationals entering the African market is the constant change in the regulatory environment. Regulations in the African region are inconsistent and do not cater for the needs of multinational companies with cross border activities. This is often as a result of local regulators adopting a “me too” strategy where they
follow the regulations that have been introduced elsewhere in the region without fully understanding how relevant these regulations are or their impact in their own country. These ever-changing regulations also make it very difficult for the multinational to plan ahead.
The common regulatory denominator throughout the Region is that local market capacity needs to be utilized before regulators will permit external placements. Additional regulatory requirements include the need for prior approval of new policy wordings and new insurance solutions in many countries, the imposition of “no premium no cover” obligations in Ghana and Nigeria, the requirement that premiums must be paid directly to Insurers, and not to the intermediary, in Angola and Malawi, minimum rating levels in Uganda, the prohibition of rebating of commission to Clients in Nigeria and Insurers not being permitted to outsource core services to intermediaries in Namibia.
As regional markets become more interconnected and complex, understanding how best to optimize the balance between creating business opportunities and managing related risks in individual countries remains a significant challenge for multinational companies.
Most multinationals have certain global insurance programs in place, which provide very broad cover at competitive pricing – thus ensuring that the “assets and people” of the group are well protected. Due to the differing regulations in Sub-Saharan Africa, it is difficult to structure an optimal global program that is not only cost efficient, but also provides the broadest form of cover and is compliant with the various insurance regulations in the region.
As mentioned, local regulations generally require that all local market capacity must first be exhausted, before foreign insurers’ capacity may be accessed. Even then the local regulator may wish to vet the policy wording or impose minimum premium rates.
This results in multinational companies with investments in more than one African country having to implement a patchwork insurance solution in an attempt to comply with each country’s regulations – which can be expensive, time consuming and could potentially leave the group with gaps in cover.
Other concerns include the lack of cooperation and collaboration between regional and continental regulatory bodies and inadequate funding for effective regulation. For organizations contemplating expanding their operations across the continent, these are practical considerations which may impact either their investment decisions or structuring an optimal global insurance program.
Most organizations want to be seen to be good corporate citizens in whichever country they operate; they want to comply with the laws of the land and do not want to jeopardize their reputation by breaching any regulations. This then makes it key for multinational companies to find the right balance between compliance with these diverse regulations and accessing their global programs.