Insurers expecting market growth as recession ends across Africa

Africa’s insurers are slightly more enthusiastic about the current state and outlook for their industry, expecting a gradual recovery of the continent’s economy from its deep recession in 2015 and 2016 that will positively impact on insurers’ rates and earnings, at the same time easing the pressure from excess capacity and fierce competition. According to the 3rd Africa Insurance Barometer, launched at the 45th conference and general assembly of the African Insurance Organisation (AIO) in Ghana, the continent’s insurers are slightly more enthusiastic about the current state and outlook for their industry than in the preceding two editions. The underlying economic and societal fundamentals of Africa’s insurance markets remained largely unchanged in comparison to last year’s survey. Abundant natural resources, the young and growing societies, an expanding middle class and the advent of new technologies are all driving insurance demand. The recent economic recovery – though still fragile in some countries – adds further momentum to the continent’s insurance outlook. As elsewhere, however, insurance markets are suffering from excess capacity and cut-throat competition. As rates are low, regulators aim to protect domestic insurers from foreign competition with higher barriers of entry. Prisca Soares, the secretary general of the AIO, said “According to the AIO members polled for this survey, policymakers and regulators pay greater attention to our sector while consumers have started to realise the benefits insurance offers in protecting their assets. “Our industry currently accounts for insurance premiums of US$60.7bn, which in US dollar terms represents a decline over the previous year. However, in local currency premium, volume has not declined since 2011.” Africa’s commercial insurance rates appear to have levelled-out. A growing number of executives expect rate increases in the next 12 months, driven by stronger economic growth and the assumption that the regulator will intervene to maintain market safety where rates have deteriorated beyond reason. As in past surveys, the profitability of commercial lines still benefits from historically better pricing. In addition, recent claims experience has been low in some markets. Personal lines are considered to be more stable. Competitive pressure is less pronounced as brand loyalty is higher than among commercial clients. In motor there is some pricing pressure due to higher claims, but it is unlikely to move rates broadly. Profitability has improved slightly and is expected to benefit from economic growth and the potential interference of regulators. Ms Soares said “With the advent of new technologies and the ambition of our industry to create and deliver tailored products to clients, our relevance as a key sector for the prosperity and progress of Africa’s economies has greatly improved.” The continent’s low insurance penetration is one of the market’s largest opportunities. With the economic rebound, insurers have increased their efforts to broaden their product offering and widen distribution. Technology is providing new avenues for innovation, both in commercial and personal lines, and is helping to bridge geographical distances, increasing scale and thus improving efficiency. Africa’s regulatory framework, though for the first time seen by a majority of interviewees as broadly adequate, features among market opportunities and threats as well. The introduction or enactment of compulsory insurance schemes in some markets, as well as tighter capital and solvency requirements is contributing to a consolidation and strengthening of the markets. However, insurers still would like to see regulators further promoting insurance awareness and penetration. Inconsistencies in enforcement and, in certain markets, a tendency to overregulate and stall business initiatives count as weaknesses while the surge in protectionism seen in many markets remains a double-edged sword to many insurers. Excessive competition has turned into another challenge uniform to Africa’s insurance markets. Many executives regard current market conduct as unethical or irresponsible with too many players “chasing the same cake”.

Insurers expecting market growth as recession ends across Africa

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