Challenges facing African insurance market – AIB

Continued from last edition…

WITH THE INTRODUCTION of higher solvency requirements, the number of insurance players has reduced and according to interviewees, this process is still ongoing. Furthermore, due to the continuously low rates coupled with a number of big claims, some international insurers have decided to recalibrate their African market presence.

In fact, as one interviewee puts it, there had been a time when large global international insurers were pursuing the ambition to eventually write business in every African market. That ambition is gone, and the international players today focus on just markets where they see a clear growth per spective. However, while the number of international players might stagnate or even fall, regional African and even domestic players are expanding.

Technology is perceived to facilitate this development as mobile distribution makes data available from consumers in neighbouring markets that previously had been hard or expensive to obtain. Thus, bolt-on market extensions,
focusing on an expansion into neighbouring markets, seem to have become more feasible than in the past.

The trend for foreign insurers entering the African markets and expanding their market share at the expense of the domestic players has reversed. In the past the expansion of international players had been driven by the hope to participate in Africa’s growth story and thereby to overcome the stagnation in their mature home markets.

International players were seen to have an advantage because of resources and better access to data and information. However, high acquisition costs and low rates have taken their toll and the international players have recalibrated their growth strategies, also in light of high shareholder return expectations for their foreign investments.

On the other hand, African insurers have become more competitive as well, developing regional champions which benefit from their market proximity and lower cost ratios. Finally, protectionist measures may also be at play here as local regulations might restrict the market access for foreign players.

The relevance of brokers in Africa’s insurance markets is steadily increasing. This applies almost exclusively to commercial lines. But in particular in a soft-market environment, brokers can demonstrate to clients their benefits by providing greater price transparency and by securing better prices for clients. In personal lines agents are probably the most established distribution channel, but insurers also invest heavily in direct sales to better control the sales quality while expanding their outreach.

Bancassurance continues to further expand on the back of demand for life and credit products. In some markets, regulators have newly licensed this sales channel. Banks thus benefit on the one side from their established sales network, cross selling opportunities particularly with savings products and also improvement in financial inclusion, driven by Africa’s growing middle class.

The executives polled remain sceptical towards the potential of online and mobile systems within the total mix of distribution channels. It still seems to be a niche of consumers willing to purchase their insurance cover online. Short-term potential is seen in particular in microinsurance solutions, but overall this market segment is still small within the total landscape of insurance products.

Africa’s insurers seem to apply almost equally the whole spectrum of measures to enhance insurance penetration and build their market presence. However, there are some striking similarities in the market approaches of the insurers. Firstly, insurers aim to expand their distribution to include the lower income segments of society. Here access to data, lower acquisition costs and new product developments – such as micro-insurance products but also greatly simplified product solutions in life, credit or agriculture have opened up new avenues to relieve the price pressure in generic and overcrowded market segments.

Secondly, technology helps to find solutions that are cost efficient and had been either too complicated or too costly in the past, such as parametric products in agriculture. In addition, interviewees point out that their companies invest heavily in the agent network but also in a direct sales force to reach out to broader client segments.

Thirdly, insurers are more willing to form partnerships and to embrace the strengths of others in the value chain
to enhance efficiency while retaining a lid on cost. Thus, insurers cooperate more frequently with partners in the
distribution chain, such as affinity groups, reinsurers or brokers to reach out to further client segments.

Finally, executives emphasise that they are stepping up their game to invest more broadly in training and educating their own staff to overcome the shortage in talent and skilled employees.