To achieve the expected transformation of insurance and reinsurance potentials in Africa, operators must tackle the issue of capacity building in the continent which had reduced the level of risk underwriting companies could accept.
Besides, insurance practitioners in Africa need to focus on the development of new products that can meet the needs of various groups in the society, develop human capital, information technology and good corporate governance among others.
In the Africa Insurance Barometer 2016 market survey initiated and organized by African Insurance Organisation (AIO) and released during the AIO conference in Morocco last week, experts said the potentials of insurance in Africa were enormous but for the market to exploit its full potentials , these issues holds the key to the development of insurance potentials in the continent.
Summary of key findings are that Africa’s economic boom and subsequent growth of its insurance market, which is well above the global average, are the region’s most significant strength, according to the majority of the chief executives polled. The market’s robustness has improved markedly, partly due to tighter regulation, but also benefiting from enhanced distribution of insurance products driven by the growing success of bancassurance and mobile phone distribution.
According to the experts, a shortage of skilled and experienced insurance professionals is a key weakness limiting growth. Lack of awareness of the benefits of insurance products, excessive competition and insufficient product differentiation, are also dampening the market’s growth perspectives.
Africa’s largest opportunity is certainly its low insurance penetration, which in some countries is less than one per cent of gross domestic product (GDP) – well below the global emerging markets average of 2.7 per cent in 2014. New product developments in life insurance, medical care, agriculture or micro-insurance, as well as a growing middle class, may help close the gap. However, given their need for specialist risk management capabilities and high quality security, large and complex risks are still ceded to foreign insurance markets. Many of the executives pooled are concerned about this continued flight of premiums and perceive it as a threat to the viability of the domestic insurance industry.
Across all lines of business, the report said, current profitability is viewed more positively than premium rates. Losses have not yet fully developed. Capital and interest gains, as well as reserve releases, support profitability while greater cost efficiencies are expected to drive down cost ratios further.
The vast majority of executives expect insurance premiums to grow as fast as, or even outpace growth in GDP. Executives hope for more investments in infrastructure and that further personal lines will become compulsory, which might also contribute to improve insurance awareness. Micro-insurance is also seen as a driver for growth, although it is frequently perceived as insufficiently regulated.
Also, personal lines like individual annuity business and motor insurance, which is compulsory in most African markets, are the continent’s fastest growing lines. By contrast, group life insurance and marine cargo, where rates have come under pressure due to overcapacity, are among the slowest. Credit life insurance which is used to protect lenders, as well as property business where large and specialized capacity is needed, are considered most profitable, while motor as well as health care mentioned as least profitable.
According to the report, Africa’s insurance markets remains diverse and fragmented. Regulation is thought inadequate because undercapitalised companies compete on price rather than service, while cross-border business suffers from a lack of regulatory harmonization. Executives demand closer cooperation and often cite CINA, the Inter African Conference of Insurance Markets, as an example of successful regional collaboration.