Why Africa market defies economic crises
African insurers remain upbeat about the prospects for their markets, according to the 2nd Africa Insurance Barometer, which was unveiled at the just concluded 44th Africa Insurance Organisation (AIO) Conference & General Assembly in Kampala, Uganda.
The 29 senior executives from regional and international insurers, reinsurers and brokers in attendance for this year’s survey believed that the young, growing and more affluent population as well as investments in infrastructure and exploitation of the continent’s raw materials will boost demand for insurance protection.
However, inadequately harmonised regulatory frameworks across the Continent, which are frequently not enforced as well as the persistent lack of skills and local talents, remain the industry’s soft spots.
However, unless the regulators take action, many African insurers are insufficiently capitalised and lacked the financial stability, which reduce consumer confidence.According to the Secretary General, AIO, Prisca Soares, Africa Insurance Barometer provides a comprehensive overview of the current state and future prospects of the $64 billion African insurance market.
Soares explained that the executives interviewed for this year’s edition expected the underlying market fundamentals to prevail over the economic decline that many markets witnessed in 2016. Majority of the interviewees assumed that premiums will outgrow gross domestic product (GDP).
Africa’s insurance penetration, which currently stands at 2.9 per cent or less than half of the global average, will translate into accelerated premium growth, provided global demand and commodity prices continue to bounce back in 2017 and 2018.Due to new technology, in particular mobile telephones and the Internet, a broader array of products and distribution channels is available to access the continent’s corporate and partly untapped consumer base, including its growing middle class.
However, adequate regulation is needed to control and facilitate the market’s expansion. Some requirements tightened in the past year. But interviewees are also concerned about overregulation with a tendency to burdening insurers with additional cost, complexity and incoherent regulatory enactment.
The Uganda President, represented by the Vice President, Edward Sekandi, at the event, listed strategic areas that must be addressed by African countries and operators in the insurance industry in order for the continent to move forward.
According to Sekandi, limiting factors include ideological disorientation, attacking the private sector, inadequate infrastructure that caused the cost of doing business to be exorbitant, underdeveloped human resource and fragmented markets that cannot stimulate and sustain large scale production by providing adequate demand.
Others are lack of industrialisation and continuing export of unprocessed raw materials, undeveloped services sector, which underutilise the huge potential in tourism, transport, banking, underdeveloped agriculture, weak democratic institutions, and lack of ideology thus creating a criminal state.According to him, insurance operators in Africa must take stock of what has been done by accurately defining the interests of its people, so as to be able to plan for the continent’s future from time to time.
He said the theme of this year’s conference: “Furthering the financial Inclusion Agenda of Africa National through Insurance” is very timely; noting that the world insurance industry is dominated by insurance companies all vying for a piece of Africa.
Pressure on insurance rates is most pronounced among Africa’s commoditised commercial lines of business, where barriers to entry are low and customers are insurance-savvy, opportunistic and fight for the best price. Non-commoditised lines, which require a high specialisation, are able to escape from some of the pricing pressure.
As a result, interviewees predict that rates will remain subdued over the next 12 months. Profitability will still benefit from the adequate original pricing of the risks, while declining rates, inflation and claims costs reduce margins.
According to 70 per cent of the executives, access to local skills and talent is a challenge for African insurers. While expertise is generally hard to come by in small markets, specialists, such as actuaries, are scarce even in the more populous markets. As know-how is missing to develop and introduce new products, capital is invested in mainstream solutions, further aggravating the fierce competition in those segments.
Interviewees expect a further concentration of Africa’s insurance industry, driven by heightened competition, regulatory pressure and the economic downturn. While regional or international insurers increase their footprint through acquisitions, smaller insurers might choose to exit the market. As regulators force them to strengthen their capital base, they struggle to survive in an environment of anaemic top line growth, high claims, currency devaluation and inflationary pressure.