Among the engines of economic growth and development in emerging countries, insurance is often neglected in favor of more flashy sectors such as technology or infrastructure. In fact, however, insurance is a behind-the-scenes factor driving growth at all levels of society, from family life to massive infrastructure projects to technological development. As discussed in my new report, develop the lucrative insurance market in Africa may be the key to creating inclusive prosperity in the region.
In particular, the increase in insurance penetration rates in African markets is directly linked to the overall development of Africa: indeed, as Das, Davies and Podpiera (2003) show, insurance can have the positive effects on growth through six mechanisms: improving the financial stability of businesses and households; mobilize savings for public and private investment; reduce pressure on government to provide public goods such as pensions; encourage trade and entrepreneurship; risk mitigation and increased diversification; and improving the social standard of living. Other researchers have identified insurance premium thresholds associated with positive economic growth in Africa. Rwanda’s Universal Health Coverage (UHC) studies found that increased enrollment was accompanied by increased use of health facilities as well as a greater presence of skilled birth attendants.
The expansion of the lucrative insurance market in Africa may be the key to creating inclusive prosperity in the region.
Despite these advantages, the overall insurance penetration rate in Africa in 2019 was only 2.78%, compared to the average global insurance penetration rate of 7.23%. With the increase in entries, participation and expansion of traditional and new insurance companies microinsurance (as well as reinsurance companies), the potential for growth across the continent is immense. Recent disruptive events, including an increasing number of natural disasters, political upheavals and economic disruptions due to current and future pandemics, will continue to prevail. increase demand and promote rapid growth in this entire sector, in particular digital insurance platforms.
What does the insurance market in Africa look like today?
The insurance industry has three sub-categories: life insurance, non-life insurance and reinsurance. African countries have developed in each of these market segments at different rates, following their own various growth patterns. For example, the South African market is dominated by life insurance premiums, while other countries, such as Kenya, Nigeria and Tunisia, have a much higher volume of non-life insurance premiums. than that of life.
These trends suggest future trends and point to large untapped markets for companies looking to offer insurance products that are both affordable and well suited to the mass market. In fact, only five countries are home to around 84 percent of the total estimated value of $ 68.15 billion of the continent’s insurance market. South Africa is the leader with around 70 percent of total market share, followed by Morocco, Kenya, Egypt and Nigeria. In most other African markets, however, the penetration rate remains below 2%.
Specifically, the penetration of the life insurance market has been slow due to the demand for specialized risk management capabilities and heavy investments in security and information gathering, which has left the industry fragmented. and dependent on foreign investment. Five countries (South Africa, Morocco, Namibia, Kenya and Egypt) include 92 percent of the life insurance market on the continent. Although McKinsey has expressed concern about the South African life insurance market lose ground In view of the COVID-19 crisis, the low market penetration combined with the expected increase in consumer and business spending by 2030 will continue to create many opportunities in the less developed markets of the continent.
Key to the growth and expansion of the sector is the region’s rapidly growing middle class, which can particularly find greater household stability with life insurance. As this segment of the population becomes more aware of the value that insurance brings to their households and businesses, they will be more inclined to spend more of their disposable income on insurance: by made, according to a Ernst and Young 2016 survey of African insurance companies, the increase in household and business income was the main driver of the increase in insurance premiums.
The pandemic offers an opportunity in the form of consolidation: unsustainable and inefficient actors can be kicked out of the market, facilitate innovation, healthy competition between successful businesses and better coverage. Other specialists to suggest that commercial insurance for businesses will outpace growth in individual insurance coverage over the next year, in part because of rising reinsurance rates. The pandemic has also accelerated the digitization local insurance companies, opening the door to a more accessible and inclusive insurance industry in the long run, which could be fostered by an enabling policy environment.
The adoption of technology and innovation are the keys to growth in the insurance sector in Africa. Microinsurance could also change the name of the game, as it can reach Africa’s growing middle class through small-scale, low-cost, low-risk products. MicroEnsure, which partners with telecommunications companies, is an example of a successful microfinance company that offers basic health and life insurance coverage through a free add-on to clients. existing mobile phone services. In addition, micro-health insurance products like Jamii have also entered the market, providing affordable coverage to low-income populations. Likewise, health financing has been radically changed by mobile and online platforms: M-Tiba facilitates digital management of public and private health insurance policies through partnerships with governments and providers.
Policy recommendations for risk management
Recognizing the role that the insurance market can play in development, African governments are also working to improve the regulatory climate for insurance investors. Diversification, partnership and cross collaboration between insurers and banks are the necessary basis to create economies of scale and increase revenues for the two sectors. These partnerships, coupled with accelerated digitization to online and mobile platforms, have the potential to increase profitability and profit margins. across the insurance sector in Africa—Completely transform the insurance industry.
The underdeveloped insurance market in Africa represents an opportunity both for actors in the insurance sector and for African societies in general.
While opportunities abound, there are also the risks and challenges to be overcome for the industry, including COVID-19 and future pandemics; a decentralized transnational market with regulatory barriers; gaps in enforcement; a shortage of technical human capital; low demand for insurance; and market volatility. Fortunately, investment mitigation strategies can help overcome these barriers: for example, companies need to invest both in human capital (training and development of qualified personnel) and in information technology, adapting to market trends and pursuing innovative strategies. Business-to-business partnerships should focus on improving product differentiation, working with government to address regulatory gaps and barriers, and increasing product awareness in the market.
The underdeveloped insurance market in Africa represents an opportunity both for actors in the insurance sector and for African societies in general. The first credible and practical insurance providers will reap huge benefits as this industry grows, becoming pioneers in the region. In addition, African households and businesses can advantage reduced risk and increased stability that insurance products can offer.