Growth in insurance policy ownership brings new security to Africans

Analysis in brief: Insurance policy ownership for Africans has been the world’s lowest per capita. This is changing as new technologies tailor insurance policies to African needs, while affordability and other issues are being addressed by Africa’s insurance industry.

A market of exploding growth

Like internet connectivity and car ownership, the penetration of insurance products into the African market is growing significantly. Part of this is illusionary: Growth in insurance policy ownership like phone and auto ownership is starting at a low level, so there is nowhere to go but up. However, the market potential is not an illusion. About one-fifth of the world’s population resides in Africa, where the insurance penetration rate is around 2%. Poverty that makes safety unaffordable that insurance makes possible, combined with a low understanding of what insurance provides have held back the industry on the continent. There are other considerations specific to the African market that are only now being addressed, such as making policies more flexible and inexpensive.

Insurance brokers and agents working out of fixed addresses remain the most prominent dispensers of policies. However, new technologies like social media are being used more frequently to spread the word of the benefit of having car, home and life insurance. Such new communication is one reason why the African insurance market, which was worth US$81.6 billion in 2022, is projected to reach US$123.8 billion by 2028. Expectations of this increase by one-third is founded on the growth projected in the African insurance market between 2020 and 2025, which sits at 7% per annum. This rate was twice as high as North America and more than three times as high as Europe.

Claims on short-term insurance policies
Claims on short-term insurance policies showed a significant rise in a seven-year period, particularly in the last 2 years following the global Covid-10 pandemic.
Source: Ombudsman for Short-Term Insurance, South Africa; 2016-2022

Economics of scale is also at play. Since the late 2010s, Africa’s largest insurance firms have embarked on a continent-wide expansion drive as a means to achieve long-term growth. South Africa’s Sanlam purchased another insurance company, Saham, to gain entry into more than half of Africa’s countries where Saham had a presence. Allianz has acquired insurance companies in Kenya, Morocco and Nigeria. Citizens of nine African countries can now buy policies from AXA, a French multinational insurance firm, and Old Mutual is doing business in 13 African countries.

Understanding Africa’s diverse insurance needs

While growth in Africa’s insurance policy ownership has been impressive, it is not due to growing market penetration – that is, new policy holders – but rather has been spurred by economic growth in the main countries that purchase insurance. Also, pension funds have been major buyers of insurance policies for their members, with a purchase emphasis on life insurance.

Among non-life insurance policies, motor insurance is dominant. Government insurance mandates for automobile insurance in major insurance markets like Egypt, Kenya, Morocco and Nigeria have pushed this demand. This factor illustrates the role that governments can play in boosting insurance ownership and, consequently, the financial security of citizens. Economists have pointed to market liberalisation policies, such as deregulation of the insurance industry, as ways that governments have also boosted insurance ownership.

Infrastructure damage was severe in South Africa’s KwaZulu-Natal province over the last couple of years, mostly due to mudslides and flooding from unprecedented rains. Such weather events presage a challenge for the insurance industry as the effects of Climate Change worsen.
Image courtesy: GovernmentZA/Flickr

However, if insurance coverage is to become equitable and universal, government will have to step in to address the rural-urban divide. Noting that by 2025, Cairo will account for 37% of Egypt’s GDP, Nairobi will account for 27% of Kenya’s GDP and urbanisation is concentrating GDP in urban centres continent-wide, some insurance company analysts are advising that insurers focus on cities for their customers. Perhaps an incentive programme or financial subsidy initiative will have to be instituted by national governments to assure rural insurance coverage.

Innovation will spur Africans to be insured

Addressing the issue of affordability requires both flexible policies and flexible thinking on the part of insurers. One solution available on the market is ‘usage-based’ insurance: policies that go into effect when they are needed and are temporarily cancelled when they are not. One South African firm lowers customers’ auto insurance payments by deducting the days that the customer’s vehicle is not being used. Another option is for policyholders to suspend their insurance when they are unable to pay without having these policies cancelled entirely, or a policy’s coverage will be scaled back in accordance with lower payments the holder may afford.

Some insurers are able to lower customers’ cost by using new technology, such as bypassing the insurance agent or broker and allowing a new customer to get an insurance policy online from quote to payment or by using a mobile app. Micro-insurance that offers much lower pay-outs for accidents, deaths and other settlements is an option being introduced on the African market. Such sensitivity to African customers’ needs will determine the rate that Africa’s insurance market will grow.

The critical points:

  • Although Africa’s insurance market is starting from a low point of penetration amongst African populations, its significant growth in the near future is projected by all indicators
  • Insurance market penetration for Africa depends on policies tailor-made to Africans’ needs, a process assisted by mobile technologies now in the hands of most Africans
  • Government policies, such as deregulation and market liberalisation, are important to the expansion of insurance coverage for citizens, particularly to address the rural-urban divide