African insurance markets growing despite economic headwinds

Africa’s insurers remain upbeat about the prospects of their markets, according to the second Africa Insurance Barometer, launched last week at the 44th AIO Conference & General Assembly in Kampala, Uganda. The 29 senior executives from regional and international insurers, reinsurers and brokers polled said the young, growing and more affluent population as well as investments in infrastructure and exploitation of the continent’s raw materials will drive demand for insurance protection. However, they warned that inadequately harmonised regulatory frameworks across the continent, which frequently are poorly enforced, as well as the persistent lack of skills and local talents remain the industry’s soft spots. Furthermore – unless the regulators take action – many African insurers are insufficiently capitalised and lack financial stability, which could dampen consumer confidence. “The Africa Insurance Barometer provides a comprehensive overview of the current state and future prospects of the $64bn African insurance market,” said Prisca Soares, secretary general of the African Insurance Organisation. She added: “The executives interviewed for this year’s edition expect the underlying market fundamentals to prevail over the economic decline that many markets witnessed in 2016. A majority of our interviewees assume that premiums will outgrow GDP. “Africa’s insurance penetration, which currently stands at 2.9%, or less than half of the global average, will translate into accelerated premium growth – provided global demand and commodity prices continue to bounce back in 2017 and 2018.” Due to new technology, in particular mobile telephones and the internet, a broader array of products and distribution channels is available to access the continent’s corporate and partly untapped consumer base, including its growing middle class. However, according to the findings, adequate regulation is needed to control and facilitate the market’s expansion. Some requirements tightened in the past year. But interviewees are also concerned about overregulation, with a tendency to burden insurers with additional cost, complexity and incoherent regulatory enactment. Pressure on insurance rates is most pronounced among Africa’s commoditized commercial lines of business, where barriers to entry are low and customers are insurance-savvy, opportunistic and fight for the best price. The report concludes non-commoditized lines, which require a high specialization, are able to escape from some of the pricing pressure. As a result, interviewees predict that rates will remain subdued for the next 12 months. Profitability still benefits from the adequate original pricing of the risks, but declining rates, inflation and claims costs reduce margins. The Barometer found "In personal lines rates are more favourable. While access to the market is more complex and policyholders act less opportunistically, insurers try to control more of the value chain themselves. Profitability also fares better than in commercial lines, although claims inflation and a depressed economy negatively affect the bottom line. Going forward almost 80 % of interviewees predict stable or even rising profits, as personal lines are viewed as less volatile and exposed to cutthroat competition." According to 70 % of executives, access to local skills and talent is a challenge for African insurers, it also revealed. While expertise is generally hard to come by in small markets, specialists, such as actuaries, are scarce even in the more populous markets. As know-how is missing to develop and introduce new products, capital is invested in mainstream solutions, further aggravating the fierce competition in those segments. Barometer interviewees expect a further concentration of Africa’s insurance industry, driven by heightened competition, regulatory pressure and the economic downturn. While regional or international insurers increase their footprint through acquisitions, smaller insurers might choose to exit the market. As regulators force them to strengthen their capital base, they struggle to survive in an environment of anaemic top line growth, high claims, currency devaluation and inflationary pressure.

African insurance markets growing despite economic headwinds

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