Insurance markets in Africa, including those of Algeria Egypt, Morocco and Tunisia, have grown on the back of the economic boom of previous years. The markets have also improved significantly their robustness, partly due to tighter regulation and also enhanced distribution of insurance products through bancassurance and mobile phone distribution, according to senior insurance executives on the continent.
The majority of the executives predict that Africa’s insurance markets with annual premiums of US$69 billion will grow in line with the continent’s GDP or even faster.
These views, gathered from in-depth interviews with 28 senior executives from regional and international insurers, reinsurers and brokers, are set out in the first Africa Insurance Barometer released by the African Insurance Organisation (AIO) at the 43rd AIO Conference & General Assembly, held in Marrakech last month.
Executives hope for more investments in infrastructure and that further personal lines will become compulsory, which might also contribute to improve insurance awareness. 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.
However, insurance penetration is still exceptionally low. In some African countries, it only amounts to less than 1% – well below the global emerging market average of 2.7% in 2014, demonstrating the enormous growth potential within the industry. New product developments in life insurance, medical care, agriculture or microinsurance, as well as a growing middle class, may help increase penetration.
Challenges and weaknesses
According to the interviewees, 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.
In addition, 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 polled are concerned about this continued flight of premiums and perceive it as a threat to the viability of the domestic insurance industry.
Regulation is thought inadequate, and undercapitalised companies compete on price rather than service, while cross-border business suffers from a lack of regulatory harmonisation. Executives demand closer cooperation and often cite CIMA, the Inter African Conference of Insurance Markets, as an example of successful regional collaboration.
Profitability
Across all lines of business, 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. Credit life insurance as well as property business, where large and specialised capacity is needed, are considered most profitable, while motor as well as health are mentioned as least profitable.
African premium volume in 2014 totalled $69 billion, down from $72 billion in 2013. Life insurance accounted for about two thirds of the 2014 total, with the remainder going to non-life business. With a share of 71% of total premiums in 2014, South Africa dominates the African insurance market.
In 2014, the 10 largest markets (South Africa, Morocco, Egypt, Nigeria, Kenya, Algeria, Angola, Namibia, Tunisia and Mauritius) generated a premium of $63.4 million, or 92% of total African premiums.
Established in 1972 in Mauritius, the AIO is a non-governmental organisation recognised by many African governments. Currently, the AIO has 371 members, 363 of them from 47 countries in Africa and 13 associate international members from seven countries.