Rates pressure insurers in Africa but opportunities prevail
Africa’s insurance markets suffer from excess capacity and cut-throat competition, but a low market penetration offer opportunities for growth.
These are some of the key findings of the Africa Insurance Barometer 2018.
As rates decline – more so in commercial lines than in the less volatile personal lines – regulators on the African continent are starting to shelter domestic insurers from foreign players with higher barriers of entry.
Protectionism might prove a double-edged sword, weakening the market’s ability to diversify risks and retain access to international expertise, the report by the African Insurance Organisation, notes. Africa’s insurers often highlight the lack of local talent, in particular in staffing key actuarial functions, where such skills are needed to expand the existing product suite and reach out to broader customer segments.
At the same time, continent’s strong underlying fundamentals continue to prove attractive for Africa’s insurance markets, according to the report. While the insurance markets benefit from Africa’s abundance of natural resources, its young and growing societies, the expanding middle class and the advent of new technologies, the recent economic recovery – though still fragile in some countries – adds further momentum to the continent’s insurance outlook, the report notes.
The insurance industry in Africa currently accounts for premiums of $60.7 billion, which in US dollar terms represents a decline over the previous year. However, in local currency premium volume has not declined since 2011, according to the report.
The continent’s low insurance penetration still presents one of the market’s largest opportunities, the report says. As the economy rebounds, insurers have increased their efforts to broaden their product offering and widen distribution. Technology provides new avenues for innovation, both in commercial and personal lines. In addition, it helps to bridge geographical distances, increases scale and thus improves efficiency, according to the report.
To increase insurance penetration, African insurers are investing heavily in marketing to build awareness and overcome a lack of product understanding or low consumer confidence. In addition, insurers are keen to strengthen their talent and skill base to take advantage of new product and distribution opportunities. They broaden their offering to tap into demand that emerges with the increase of disposable income and the deeper integration of the African economy into the global production chain. Wider distribution channels will provide access to remote client segments that had previously been too costly or inefficient to approach, the report claims. As new technology becomes available, barriers to market entry have come down.
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