5 Realities Supporting the Idea of a Booming Insurance Market in Africa

5 Realities Supporting the Idea of a Booming Insurance Market in Africa

For many decades, Africa was celebrated for its oil & gas and mineral riches, a trend that persists into the 21st century. However, this is not the sole narrative shaping the continent’s future. The rise of the middle class, increasing from 26.2% in the ’80s to 34.3% in 2010, has significantly fueled internal consumption and spurred the emergence of growth markets, including a booming insurance market. This shift is pivotal in understanding Africa’s evolving economic landscape.

Because insurance is not a much known financial sector in Africa compared to its peers (banking, private equity -that attracts more and more capital- …etc.), this article aims at highlighting 5 realities supporting the idea of a booming African insurance market:

1-       When low insurance penetration rate means high growth potential

Insurance experts and practitioners from around the world think that a low insurance penetration rate (Insurance market size/GDP) is a sign of the high growth potential of the insurance market in a country. Africa is a concrete example of that, since according to the publication Sigma of Swiss Re “World Insurance in 2013: Steering towards recovery”, the insurance penetration rate in the continent reached 3.5% vs. 6.28% worldwide while the market recorded a growth rate of 10.2% in Africa vs. 2.5% worldwide.

2-       When African insurance markets start attracting foreign and African insurance players

The most attractive insurance markets in Africa have an increased number of incursions of foreign insurers or investors that generally create their subsidiaries from scratch or just acquire an existing local player. Kenya (East Africa), Ghana and Nigeria (West Africa) were the preferred targets of foreign insurers known for their appetite for growth coming from emerging markets such as the British insurer “Prudential Plc.” that:

• Acquired the Kenyan player Shield Assurance in September 2014.
• Acquired the Ghanaian local player “Express Life” in the late of 2013.
• Aims at entering the Nigerian insurance market.

French Insurer “AXA” also made a big move in the continent. Its indirect purchase of 77% stake in Nigerian Insurer “Mansard Insurance” cost “AXA” €198 M (US$ 247,3 M) in November 2014.

The 3 countries were also the targets of a number of local African players such as:

• The Moroccan “Saham Group” that bought a 40% stake in a Nigerian player in November 2014,
• The South African “Old Mutual” that acquired the Nigerian “Oceanic Life Insurance” and the Ghanaian “Provident Life” both in 2013,
• The South African “Sanlam” that acquired a stake in “Oasis Insurance” in 2014.

3-       When Africa is attracting multinational firms with risky business and strong insurance culture

Multinational firms investing in Africa by setting up production and distribution facilities such as Renault in Morocco, Unilever, Coca-Cola, Nokia…etc.; are cautious about the profile of risks threatening their activity in an environment characterized by its weak infrastructure and political instability. The increased incursions of foreign multinational companies is driving commercial insurance up in several countries like South Africa, Nigeria, Kenya, Ghana, Morocco and Angola.

The entry of multinational firms in African countries also put local insurance players into the necessity of developing tailored and sophisticated products like the Political risk insurance coverage that was developed in Kenya by “UAP Insurance” and Agricultural insurance schemes that were developed in Ghana and Angola…etc.

4-       When governments understand the threat of Natural Hazards on their economic development

According to Swiss Re Sigma publications in 2012 and 2013 ‘Natural Catastrophes and artificial disasters’, the insured losses in Africa increased from US$ 0.2 bn (13% of total economic losses) in 2012 to US$ 0.6 bn (60% of total economic losses) in 2013. This demonstrates that Africans are increasingly aware of the importance of insuring their assets against Natural Hazards.

The impact of natural hazards is disastrous for African economies with weak infrastructure; this is why governments and international organizations (World Bank) are launching transnational reinsurance pools and insurance programs in order to help insurers cover this kind of risks.

5-       When the will of governments to address insurance regulatory issues becomes an opportunity for improving the top line results of insurers

In several African countries many insurance policies are not mandatory and/or enforced by the law as it is the case in Europe and the United States. Insurance companies paradoxically see that as a weakness of enforcing regulation and an opportunity for an interesting growth once some products are made mandatory following a lobbying manoeuvers executed by insurers’ associations or by some specialized lobbying firms.

As an example, only 15% of Nigerian vehicles (2.5 million) are insured this is due to the existence of fake agents selling fake insurance policies as the country is well known for the lack in enforcing its laws. The Nigerian insurance association is increasingly lobbying the federal government in order to attract its attention towards this situation.

In Summary, the growth potential of the African insurance market represents a huge opportunity for international insurance firms that:

• Are increasingly aware of that fact,
• Have no intentions to spare any efforts allowing them to enter into the most promising insurance markets in the continent.

El Mehdi Amid, Senior Analyst, Infomineo