Africa is one of the world’s hottest regions for insurance. Steady economic growth in most countries combined with a largely underdeveloped insurance sector have positioned the continent as the second-fastest-growing region for insurance globally after Latin America.
Prior to the impact of COVID-19, the insurance market was expected to grow at compound annual growth rates (CAGRs) of seven percent per annum between 2020 and 2025, nearly twice as fast as North America, over three times that of Europe, and better than Asia’s six percent.
This article, among other things, outlines the current state of the diverse African insurance market, the effects of Covid-19 Pandemic on the insurance sector, the trends that are shaping it, and further articulates five imperatives for achieving success on the continent.
What Does Africa’s Insurance Market Look Like Now?
The insurance sector is comprised of three subcategories: life insurance, nonlife insurance, and reinsurance. African countries have grown in each of these market segments at varying paces, following their own diverse growth patterns.
For example, South Africa’s market is dominated by life insurance premiums, while other countries, like Kenya, Nigeria, and Tunisia, have a much higher volume of nonlife insurance premiums than life ones.
These patterns are suggestive of future trends and point to vast, untapped markets for companies seeking to deliver insurance products that are both affordable and well suited to the mass market. Indeed, just five countries house about 84 percent of the estimated $68.15 billion total value of the continent’s insurance market.
South Africa is the leader with about 70 percent of the total market share, followed by Morocco, Kenya, Egypt, and Nigeria. In most other African markets, though, the penetration rate remains below two percent.
More specifically, life insurance market penetration has been slow because of the demand for specialized risk-management capacities and heavy investment in security and information gathering, which has left the sector fragmented and dependent on foreign investment. Five countries (South Africa, Morocco, Namibia, Kenya, and Egypt) comprise 92 percent of the life insurance market on the continent.
COVID-19 effects on insurance sector
With the continent now battling the novel coronavirus, recently published financial results of many insurance companies across the continent indicate that these projections are likely to take a knock over the next three years.
The pandemic is profoundly affecting both lives and livelihoods, and consumers are cutting back on discretionary expenditure—including insurance—in the face of income and market volatility.
However, this impact is expected to delay rather than alter the pattern and potential of future growth. And in some cases, the crisis may accelerate existing trends—notably the shift toward digital and remote channels, which has the potential to offer new opportunities to both insurers and consumers.
Although McKinsey expressed concern about South Africa’s life insurance market losing ground given the COVID-19 crisis, low market penetration combined with expected increased consumer and business spending by 2030 will continue to create plenty of opportunities in less developed markets across the continent.
Key to the sector’s growth and expansion is the region’s rapidly growing middle class, who can particularly find greater household stability with life insurance. As this segment of the population becomes increasingly aware of the value insurance provides to their households and businesses, they will be more inclined to spend more of their disposable incomes on insurance. In fact, according to an Ernst and Young 2016 survey of African insurance companies, increased earnings in households and businesses were the leading driver of increased insurance premiums.
The pandemic affords an opportunity in the form of consolidation: Unsustainable and inefficient players may be forced out of the market, facilitating innovation, healthy competition among thriving companies, and better coverage.
Other experts suggest that commercial insurance for businesses will outpace the growth of individual insurance coverage over the next year, partly because of increasing reinsurance rates.
The African insurance market’s immaturity points to significant growth
Africa’s insurance industry is valued at about $68 billion and is the eighth largest in the world—although this is not equally distributed across the continent. Markets are inconsistent in terms of size, mix, growth, and degree of consolidation, with 91 percent of premiums concentrated in just ten countries.
South Africa, the largest and most established insurance market, accounts for 70 percent of total premiums. Outside of South Africa, we see six primary insurance regions in Africa. In the Southern Africa region, 54 percent of premiums are for life insurance. Non-life insurance, however, plays a larger role in anglophone West Africa, North Africa, East Africa, and even more so in francophone Africa.
The level of maturity in these six regions is low, relative to global reference countries, as measured by insurance density (premium per capita). While most African countries have experienced double-digit insurance growth over the last five years, this has mostly been driven by economic growth, rather than deepening market penetration.
Levels of insurance penetration in Africa are half the world average measured as a percentage of GDP, and premiums per capita are 11-fold lower than the world average.2 This points to significant scope for growth.
The bulk of the growth in Africa is likely to come from pensions and individual life insurance— which is the fastest growth line of business on the continent, although starting from a smaller base compared to nonlife insurance. While motor insurance is the largest contributor to nonlife insurance—driven by requirements for a compulsory minimum level of insurance, often third-party liability in countries like Morocco, Kenya, Nigeria, and Egypt—accident insurance, health insurance, and property insurance have all shown faster growth in recent years.
The prospects for growth in commercial lines are also good. In Nigeria, for example, commercial insurance has performed strongly, with oil and gas growing at 9 percent per annum and marine and aviation at 10 percent per annum between 2014 and 2018. In 2018, oil and gas insurance and marine and aviation insurance accounted for 34 percent and 11 percent, respectively, of nonlife gross premiums in that country.
In Ghana, the Ghana Oil and Gas Insurance Pool (GOGIP) almost doubled from $25 million in 2016 to $48 million in 2019 and represents approximately 15 percent of total nonlife premiums in that country.
Across the continent, distribution channels also vary by region as well as between life and nonlife products. Brokers and agents remain the most prominent channels, although direct sales and bancassurance have increased their share. For example, in the Ghanaian life-insurance market, the bancassurance share of premiums has almost doubled from 7 percent in 2015 to 13 percent in 2019.
Recognizing the role 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 among insurers and banks is the foundation required to create economies of scale and increase revenues for both sectors.
These partnerships, coupled with accelerated digitization to online and mobile platforms, have the potential to increase cost efficiencies and profit margins throughout Africa’s insurance sector—completely transforming the insurance industry.
While opportunities abound, there are also risks and challenges for the industry to overcome, including COVID-19 and future pandemics; a decentralized cross-country market with regulatory barriers; gaps in regulatory enforcement; a shortage of technical human capital; low demand for insurance; and market volatility.
Thankfully, investment mitigation strategies can help overcome these hurdles: For example, companies will need to invest in both human capital (training and developing qualified staff) and information technologies, adapt to trends in the market, and pursue innovative strategies. Partnerships between companies need to be focused on improving product differentiation, working with government to fill regulatory gaps and barriers, and increasing product awareness in the marketplace.
Africa’s underdeveloped insurance market represents an opportunity both for players in the insurance sector and for African societies in general. The first credible and convenient insurance providers will reap enormous rewards as this sector develops—becoming pioneers in the region. Moreover, African households and businesses can benefit from the reduced risks and increased stability that insurance products can provide.
Stimulating growth through structural reform
Apart from Morocco, where there has been a big investment in agent networks, and Ghana where insurance growth is catching up to GDP, growth in Africa’s insurance sector is being driven primarily by economic growth rather than deepening market penetration. And where penetration is occurring, it is mostly accompanied by structural reforms.
Market liberalization and deregulation, the enforcement of compulsory insurance, increased access through wider distribution, public–private partnerships, and regulation to support innovation and access have all been shown to build consumer trust and develop more resilient insurance industries with better-protected populations in comparable markets.
Consumers in Turkey, for example, have benefited from the enforcement of desirable compulsory insurance such as earthquake insurance on private dwellings and third-party liability insurance. And the Pension Reform Act of 2014 in Nigeria has benefited both consumers and the insurance industry alike, leading to a 70 percent growth in the sale of pension products in that country between 2012 and 2017.
Similarly, private–public partnerships between insurers and governments, such as a scheme to subsidize agricultural insurance in Turkey, have played a key role in expanding the industry in some regions and ensuring that consumers who need it have access to relevant insurance products. While in India, the deregulation of the state-owned monopoly opened the market to private players as well as foreign investment.
Increasing access through digital innovation and wider distribution
The pandemic has also accelerated the digitalization of local insurance companies, opening the door for a more accessible and inclusive insurance industry in the long term, which could be fostered by a conducive policy environment.
Technology adoption and innovation are the keys to growth in the African insurance industry. Microinsurance could also change the name of the game, as it can reach Africa’s rising middle class through small-scale, low-cost, low-risk products.
MicroEnsure, which partners with telecommunications firms, is an example of a successful microfinance venture that offers basic health and life insurance coverage through a free add-on to customers’ existing mobile phone services.
Furthermore, micro-health insurance products like Jamii have also entered the market, bringing affordable coverage to low-income populations.
Similarly, health financing has been radically changed by mobile and online platforms: M-Tiba facilitates digital management of both public and private health insurance policies through partnerships with governments and providers. While we are seeing several insurers starting to digitize customer journeys, significant opportunities still exist to accelerate this in many markets. To meet rising demand for digital solutions, Insurtechs have been quick to step in.
For example, Naked, a fully digital player focused on motor and home insurance in South Africa, is offering competitive prices to customers by reducing its operational costs through automation—boasting a three-minute process to get a quote and to sign up. It also introduced differentiating features that could be activated through their mobile app—for example, CoverPause allows customers to reduce premiums for days they were not driving.
Pineapple, which offers comprehensive personal insurance cover, has pioneered a decentralized digital and scalable model based on peer-to-peer lending. Among other innovations, its model allows customers to upload pictures of items they want to insure on a per-item basis, and image recognition is used to provide a quote within 60 seconds.
The COVID-19 pandemic has accelerated this trend, by driving demand for digital and remote channels, and we expect this to continue beyond the crisis. It is likely that online and mobile banking usage in several African countries will show a net increase of between 20 and 40 percent postcrisis and that the use of mobile payments will significantly increase, especially in those regions where mobile use is currently below average.
Competition among players has already led to significant innovation and disruption in the African insurance market, with insurers leveraging technology to target specific segments or services and cut costs. Innovative partnerships between insurers and online platforms are also becoming more commonplace. We expect this trend to accelerate. In some instances, African countries may even leapfrog more developed markets.
In East Africa, for example, Blue Wave in Kenya is servicing the mass market, making microinsurance products accessible via mobile phone. Founded in 2019 with $300 thousand in seed funding, Blue Wave generates revenue by collecting administration fees from every subscriber and a commission from each premium.
The company partners with insurers and aggregators such as mobile network operators, as well as banks and microfinance institutions, to sell its products. It also leverages a mobile-based payments solution to reach customers. Solutions are offered in multiple languages, using simple terms, clear explanations, and avoid jargon to facilitate easy access.
In the meantime, Insurtech platforms such as Bismart, WazInsure and Kakbima are connecting customers to insurers, providing services such as quote comparisons, direct sales, and the tracking of policies and claims.
Using regulatory supervision to get to consolidation
Several African governments are strengthening regulatory and capital requirements of insurance companies to ensure their solvency and sustainability. This is expected to help create stronger and larger companies as well as boost job creation and capability building in the industry. Such reforms are also crucial to building consumer trust and public awareness, which lay the groundwork for governments to achieve a transformation agenda.
For example, countries in the West African Economic and Monetary Union (WAEMU) require the insurers of Conférence Interafricaine des Marchés d’Assurances (CIMA) to maintain a minimum capital requirement of 3 billion CFA francs ($5.5 million) for mutual companies (up from 800 million) and 5 billion CFA francs ($9.1 million) for limited-liability insurance companies (up from one billion).
Similarly, the National Insurance Commission (NAICOM), which regulates the industry in Nigeria, increased the minimum capital requirement for all insurance and reinsurance firms in May 2019; for composite insurers, the capital requirement increased from NGN 5 billion ($13.1 million) to NGN 18 billion ($47.3 million).
The goal of these reforms is to strengthen the sector and enable the emergence of more solid market players. In Tunisia, a new insurance code has been implemented to give the General Insurance Committee (CGA) greater public authority, ensuring better governance of insurance companies and modernizing the legal framework for life insurance, among other imperatives.
To meet these new capital requirements, a consolidation of smaller players is expected, especially in markets for nonlife insurance, which remain very local and fragmented. Fragmentation is still seen in many larger markets too. For example, the top five nonlife players in Kenya and Nigeria account for 38 percent and 39 percent of the market, respectively. Foreign players also may be attracted into the market to capitalize on the strong growth opportunities available, as these policies open the door for mergers and acquisitions.
Five imperatives for insurance companies to succeed in Africa
These trends highlight that Africa is an attractive growth prospect for both regional insurers and multinationals looking to enter the market. Nevertheless, the continent is not without its hazards and challenges. The five strategic considerations can help guide insurance companies on their journey to success.
1. Choose expansion countries wisely, focusing on cities
Because of wide variations between African countries, as measured by industry maturity and competitive intensity, and culture and language, a targeted approach to market entry is essential. In line with economic growth, most African countries have experienced double-digit GWP growth over the past five years, although the levels of competitiveness, using the market share of the top five players as a proxy, in each country varies. Projected statistics show that GDP per capita will differ widely between countries and that growth will be largely concentrated in major cities.
By 2025, Cairo is projected to account for 37 percent of total GDP in Egypt, and Nairobi will account for 27 percent of Kenyan GDP. It therefore makes sense for insurers to focus on specific growth geographies with faster-growing, less concentrated markets offering maximal opportunity
Insurers that have adopted targeted expansions have been able to reap significant rewards, which has given rise to pan-African insurance companies with considerable reach and size. Their success signals two things: first, that the African insurance market is poised for growth; and second, that expansion can be strengthened through strategic acquisitions of existing companies in target regions.
2. Target unique customer segments and needs, while leveraging the power of partnerships
Insurance companies can drive innovation across products and channels to meet unmet needs and reach unserved customers. Partnering effectively can be a vital factor here.
For example, MicroEnsure, a company based in several African countries, operates on a partner-centric business model, collaborating with upwards of 70 insurance companies, 13 telecom partners, and approximately 90 financial-services providers and microfinance institutions to make insurance accessible to low-income clients and gain access to large existing client bases. About 85 percent of their clients have never had an insurance product before.
ACRE Africa focuses on distributing microinsurance products throughout the agricultural value chain. Operating in multiple countries, it has an extensive agent network to distribute products and provide farmer education. It partners with a mobile money-agency network to facilitate payments and works with several financial institutions to facilitate access to microinsurance products.
Already, ACRE covers about 1.7 million farmers in East Africa. Some of its innovative products include mobile-based weather-index insurance, hybrid-index and multiperil crop insurance, livestock cover, and a replanting guarantee.
In addition to innovating across products and channels, companies can develop an ecosystem approach through partnerships, as traditional industry borders continue to fall away. Some companies are rapidly building interconnected sets of services to secure customer stickiness and offer real synergies.
Partnering allows carriers to offset their lack of capabilities, such as the ability to offer health technology, for example. In a given ecosystem, insurers can play roles of either orchestration—a prime example is Discovery, which uses partnerships to integrate noninsurance services into the insurer’s realm—or participation, where insurers can participate in an ecosystem orchestrated by others.
3. Focus on digital and digital-enablement of the agent to increase reach and productivity
The COVID-19 crisis means that digital-first for customers and intermediaries is no longer a choice but a necessity. Lockdowns and working from home have accelerated digital adoption and shifted expectations in the next normal, and interactions that are not digital or digitally enabled will no longer gain traction. As a result, leading players are moving quite aggressively on direct and digital, while boosting agent productivity through better tooling and customer self-service.
In addition, an expansion of mobile wallets, payment infrastructure, and enabling regulation of payment service banks and institutions in the past three years, particularly in West and North Africa, is expected to facilitate premium and claims payments.
Having digital as a core element of their strategy is key for insurers; however, the approach to digitization needs to be end to end, including back-office process automation for servicing and claims, as cost pressures mount and customers demand faster, real-time responses.
4. Collaborate with governments and regulatory bodies to help shape and reform the agenda
Regulatory reform has proved to be a strong enabler of deeper insurance penetration, and many countries in Africa are already seeing the benefits of new regulations. There is significant scope for insurers to collaborate with regulators on issues such as social security, solvency, and compliance requirements as well as around tax benefits of life savings and pension products. Insurers also have an important role to play in helping regulators understand and accept new underwriting models and data-driven outputs to speed up regulatory innovation, improve efficiencies, and give a broader set of consumers access to insurance products.
5. Build capabilities to unleash Africa’s talent
Africa is set to see a larger working-age population than either China or India by 2034. To harness this potential, insurers will need to build the capabilities of frontline workers, including agents, brokers, and intermediaries and create robust processes to grow talent from within. There is also significant scope to harness the power of inclusion—particularly women’s advancement.
The COVID-19 crisis has mainstreamed flexible working and working from home, opening up new avenues for talent acquisition. Having a structured approach to matching talent to roles that create value and effectively scanning the market for opportunities could yield a leapfrog opportunity in addressing scarce talent gaps at this time. Additionally, changing valuations may present opportunities for acquiring scarce skills through the acquisition of tech companies that were previously out of reach.
The global pandemic has created uncertainty and economic pressure across the continent, but the fundamentals for insurance growth remain solid. Now is the time to think more deeply about refining a strategic approach that leverages partnerships and is selective about which geographies to target while driving innovation across products and channels, expanding services, and upskilling the workforce. Assisted by these choices, insurers will be strongly positioned to take advantage of the vast—and underpenetrated—African markets, helping to unlock greater security for consumers and contributing to social and economic security on the continent.
By Dr. Felix Dela Klutse
