Many African life insurance companies are contending with rising maintenance expenses per policy driven by sluggish new business growth, according to Deloitte, a global professional services firm.
In an article, “Rising Maintenance Costs and Stagnant Growth: The Life Insurance Challenge in Sub-Saharan Africa”, in its report titled “Africa Insurance Outlook 2026/27”, Deloitte says that fixed operational costs are being spread over a stagnant or shrinking number of policies, inflating the expense burden on each policy. This challenge poses a significant threat to insurers’ profitability and solvency, as well as their long-term strategic growth objectives in the African market.
Low insurance penetration and concentration of premium
Africa’s life insurance market is characterised by low penetration in most countries and a concentration of business in a few markets. Outside a handful of countries, insurance remains a “sleeping giant” with vast untapped potential. Insurance penetration ratio, i.e. the ratio of gross written premiums to gross domestic product, is only about 2.4% for life insurance on average in Africa, compared to a global average of 2.9% in 2023. If South Africa is excluded, where the insurance penetration is much higher, the continent’s average is even lower. Consequently, many insurers operate in shallow markets where gaining scale is difficult.
This low penetration and premium volume mean that many African insurers serve a very limited customer base. Yet, they incur significant fixed costs: distribution networks, staff, IT systems, regulatory compliance, and servicing of existing policies (claims handling, customer support, etc.).
When new business growth is weak and the number of existing policies is small, these fixed maintenance costs cannot be offset by fresh premium inflows. The result is high expense ratios, i.e. a large portion of premium income consumed by management expenses. For example, in South Africa, which enjoys some scale, the life insurance management expense ratio amounted to 11% in the 12-month period ending March 2025. In smaller markets, expense ratios can be even higher and emerge as persistent underwriting losses.
Hurdles
Common factors behind low new business volumes in Africa have been attributed to a number of reasons including; economic constraints (low disposable incomes, high poverty and unemployment), lack of trust or awareness of insurance (many see insurance cover as non-essential or worry claims won’t be paid or it pays their beneficiaries), lack of appropriate insurance education, and historically weak distribution (insurers relying on urban agents to reach a small formal sector).
In many countries, cultural and informational barriers have limited life insurance uptake. This means even without cost issues, insurers struggle to sell enough policies. When this demand gap converges with rising expense bases, insurers face a profitability squeeze.
Some regulators explicitly tie required capital or minimum capital requirements to operating expenses, penalising insurers with outsize costs. Notably, countries such as South Africa, Botswana and Ghana have adopted this model, ensuring that insurers maintain sufficient capital relative to their operational outlays. This underlines how critical the expense issue has become for solvency.