Targeted regulations across Africa's insurance markets are necessary and a 'one size fits all' approach can't work, says Mr Coenraad Vrolijk, CEO of Allianz Africa.
He tells The Africa Report that there is a continent-wide trend towards improving capital and solvency rules. But capital requirements need to be scaled according to the size of the market, he says.
Commenting on the different insurance markets on the continent, he says that Ethiopia is among the most attractive untapped insurance markets. Currently, foreign direct investment in the insurance sector is not allowed in Ethiopia. He said that it is “a question of when” that the Ethiopian market is opened up to foreign investors.
Markets with substantial growth potential include Morocco, Nigeria, Kenya and Ghana, he says. Allianz has a wide range of possible new African markets.
About half of the continent’s 54 countries are “interesting”, he said. Yet, at present, the German global insurer is present in only 13 of them.
Large risk insurance
Highlighting some issues in the insurance industry, Mr Vrolijk says that large-risk and industrial insurance covers in Africa are problems, as very little experience has been accumulated on quantifying losses in those fields. Some African insurers also fail to reinsure their risks, he says.
Turning to Nigeria, he says insurance penetration in the country has been held back by a lack of insurance agents. There are fewer agents in the whole of Nigeria than at the largest Kenyan insurer, Mr Vrolijk says. Bancassurance in Nigeria has also so far been “ineffective” and remains a tiny market. Still, the Nigerian insurance market is “professionalising very quickly” after years of being “extremely fragmented”, he notes.
Approach to increase insurance penetration
The first task in the bid to promote insurance is to get governments comfortable with why an insurance industry is needed in their country. The role of insurers in developing a pool of collective savings means that they can be the biggest buyers of bonds issued by African governments, he says.
To boost the insurance sector, compulsory insurance offers one way forward, he says. Insurance covering motor third-party liability and accidents at work should be compulsory, he suggests.
However, the main obstacle to compulsory insurance is that it takes time to develop and is complicated to enforce. A crucial ingredient, he says, is an “effective, fast and predictable” judiciary system, essential to adjudicating third-party claims.
Kenya’s relatively higher levels of insurance penetration have been achieved because of “relatively liberal” regulatory rules that have allowed insurance companies to innovate, says Mr Vrolijk.
African free trade, Mr Vrolijk says, is “not yet really happening on the ground”. It remains impossible for Allianz to draw on shared supplier services – such as in the back office – across jurisdictions because “the taxman won’t accept it”.
This hurts smaller African countries in particular, as it means it is not viable to run operations there. Allianz has pulled out of some smaller markets such as Mali, Central African Republic (CAR), Togo and Burkina Faso.
These, he says, are too small to justify meeting regulatory requirements on capital. Even 100% market dominance in CAR, he says, would not justify the funding injection demanded.