How Regulatory Harmony Will Boost African Insurance Markets

Stakeholders in the Insurance sector have identified inadequate regulation in Africa as bane of the industry development.

At the same time, global insurers are expected to continue to dominate when it comes to large and complex risks.

These are some of the findings from the first Africa Insurance Barometer, a survey published by the African Insurance Organisation (AIO).

According to the survey, which is based on interviews with 28 senior executives from regional and international insurers, reinsurers and brokers, the African insurance markets benefited to some extent from the economic boom of the past years, when regulation improved and insurance gained in relevance.

However, Africa’s insurance markets remain diverse and fragmented, according to the Barometer. About two-thirds of polled executives regarded the current state of insurance regulation as inadequate in their markets.

A lack of reliable data and statistics, low capital requirements and the limited enforcement of regulatory provisions are mentioned by many executives as major drawbacks.

In some markets, too many under-capitalised companies has led to excessive competition over price, rather than for service, a situation that might erode consumer trust, it said.

It explained that while cooperation within the CIMA (Inter African Conference of Insurance Markets) markets in West Africa is mentioned as a very positive and successful example of regional collaboration, many executives called for greater cooperation among other African regulators, ideally leading to more harmonised regulatory regimes.

Michael Duncan, managing director, Marsh Africa, said: “One of the key challenges in Sub-Saharan Africa is the inconsistent and ever-changing regulatory environment our industry is confronted with. For multinational clients, intermediaries and insurers the need to arrange cover for large risks and access global insurance programmes, even if only for a portion of these risks, the process can be very frustrating as there is no consistent way of achieving this across the region. What works in one market, will not work in another.

Ultimately this lack of regulatory harmony is a major constraint to further growth in our markets.”

Global insurers boost supply

Due to excess capacity in global insurance markets and the attractive growth potential of the African insurance markets, global insurers are expected to maintain, if not increase, their market share in the continent’s insurance business, the Barometer found.

Many of the executives polled said they were concerned about this continued flight of premiums and perceived it as a threat to the viability of the domestic insurance industry.

Protection against natural catastrophes, especially drought, is also seen as inadequate (by more than 60 per cent of interviewees).

The report said that the reasons for the low penetration in this area are the result of issues on both the demand and supply side.

In general, there seems to be a tendency to underestimate the natural catastrophe loss potential, in particular in Sub-Saharan Africa, it noted. In addition, many companies lack the ability to offer relevant and affordable natural catastrophe insurance products, whereas consumers are often unaware of the availability and potential benefits of such products, the report explained.

Lukas Müller, head north & Sub Saharan Africa, Swiss Re, said: “We expect more insurance capacity to flow into the African insurance markets. First, capacity from the large global insurers is on the rise. Secondly, brokers are increasing their activities and bring in more international capacity and, finally, as African insurers grow their presence across the continent through acquisitions and also by expanding their operations.”

African insurance premium volume in 2014 totalled $69bn, down from $72bn in 2013. Life insurance accounted for about two thirds of the 2014 total, with non-life insurance accounting for the rest. With a share of 71 per cent of total premiums in 2014, South Africa dominates the African insurance market-it’s share of the total market was 40 per cent in non-life insurance.

In 2014, the 10 largest markets (South Africa, Morocco, Egypt, Nigeria, Kenya, Algeria, Angola, Namibia, Tunisia and Mauritius) generated premium of $63.4m, or 92 per cent of total African premiums.

 

Source: Leadership