Sub-Saharan Africa: Insurance’s New Frontier?

Sub-Saharan Africa (SSA) is not only fascinating for tourists, but it has started to get serious attention from the insurance industry as well. Indeed, insurance companies are starting to look at SSA with both interest and caution.

Africa’s economy has tripled since 2002 and the International Monetary Fund thinks 11 African countries will be among the top 20 fastest growing economies next year. The region’s recent demographic trends are also captivating: half of its countries are “middle income” according to the World Bank, and Africa’s middle class is the same size as India’s.

Is Africa’s Banking Revolution Leading to an Insurance Market Revolution?

Africa’s banking sector has not only grown steadily for 10 years, but it has also found new avenues of getting to people. The ways in which SSA has increased financial inclusion and bancarization have been creative and very different from those in other regions. How will that translate into opportunities for the insurance industry?

Well, first of all, there is not one African insurance market: the continent is marked by a strong heterogeneity. Even within SSA, markets are very different from each other. The demand and its attributes — from financial literacy and socioeconomic indicators to the actual understanding of insurance products and risk – vary widely. These countries’ regulation stability and political system are also very different.

Further, except for South Africa, it is very difficult to find adequate talent – yes, almost no actuaries available – or historic data. So, you’ll be asking yourself, “Why on earth should it be interesting for insurers then?”

Here’s why:

  • It’s a market of 1.1 billion people
  • Expected economic growth and growing middle classes are through the roof
  • It has innovative and efficient technology-enabled distribution channels
  • Its href=”” target=”_blank”>mobile phone penetration rate is 65% — that’s 564 million connections!
  • Obviously, it has a very low insurance penetration (3.5% for SSA, less than 1% is South Africa is excluded).


How Likely is it for Insurance Penetration and Density to Change in Sub-Saharan Africa?

Africa’s very low insurance penetration rate is a double-edged sword. While very low penetration rates represent opportunity for insurers entering SSA, these opportunities will only bear fruit if economic conditions are given so that penetration and density are allowed to increase in the medium to long term.

Some of these conditions relate to the regulatory environment and political stability, but the most interesting ones actually depend on insurers themselves. Indeed, one of the reasons for the region’s low penetration and density is insurers’ risk appetite in the region and the type of population segments it targets and products it deploys.

Most insurers in SSA target mainly the group insurance market and the upper 5% economic strata. Even in South Africa, insurance products are designed for and mainly sold to the upper middle class.

This is now changing with several insurers targeting the bottom of the pyramid with microinsurance products and partnering with retailers and telecom firms to distribute cheaper and simpler products to the underserved and younger customers. Demand seems to be ready for these products, and uptake has been high.

Mobile technology has helped some of these insurers to tap into niche markets of low-income people using alternative, informal insurance systems like Stokvel and tontines.

Promises and Opportunities for Those Ready to Master Tricky Challenges

South Africa’s largest five insurers have all embarked on a pan-African strategy already, and its largest player estimates it will invest $500 million in the region before 2020.

Some Japanese and Chinese insurers have also started to look at SSA with interest, and India’s Bharti Airtel has ventured into microinsurance together with a South African business partner.

These firms are implementing a multidimensional, pan-African strategy to overcome the region’s challenges, looking for the right partners, versatile distribution channels and flexible, simpler products.

So, as I said, Africa is the new frontier, but it isn’t for everyone. Actually, it will only pay off for patient and innovative investors. So the real question before entering Africa should be: are you really in for the long term or are your African ventures more like a hobby? If it is the latter, reconsider.

About Magdalena Ramada

Magdalena Ramada, PhD, is a Senior Economist at Willis Towers Watson’s Research and Innovation Center with over 1…
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