Insurance penetration across Africa remains low, at a rate of around 1 per cent overall and with only 7 countries with a penetration rate exceeding 2 percent (Making Finance Work for Africa - African Development Bank Group).
South Africa (15.4%), Namibia (7.7%), and Mauritius (5.8%), are the most notable exceptions, with South Africa alone accounting for 93 percent of life business in sub-Saharan Africa.
The life sector is in particular underperforming in most countries in particularly due to lack of reliable data (mortality and longevity, or credit assessment) and shortage of skills.
Challenges to the sector’s development further include:
- Political instability, high volatility and risk
- Exposure to global trends
- Legal frameworks in progress
- Lack of adequate infrastructures
- Low per capita income levels
- Low level of awareness and understanding of insurance as well as lack of trust in commercial providers
- Market fragmentation, with different stages of development, regulations and product offering across 54 very diverse markets
- Need to identify a reliable business partner to get in-depth understanding of local markets and adapt strategies
While important challenges remain, positive trends are emerging and opportunities lie still untapped.
“We expect the life insurance sector to continue to grow over the next 5 years despite currency weakness, and we expect positive changes to the risk/rewards scenarios across much of the continent”, says Nick Johnston, Senior Analyst at BMI Research. The insurance industry Risk/Reward index constructed by BMI offers insight into long-term potential and projected returns in the industry. The index is built on 2 main areas: prospects and opportunity for market development on one side, and risks to realisation of return on the other.
“There is still significant disparity across the wider African region. Among the best performers are South Africa, Mauritius and Kenya in the Sub-Saharan region, and Morocco in North Africa. From these areas regional champions are emerging that are promoting collaboration and consolidation across countries and stimulating the market development. In many countries where the market is highly concentrated, this boost to competition and likely collaboration with local subsidiaries of the South African majors will be a positive factor for growth. Cross-border consolidation and the import of expertise will help smaller markets, such as Ghana and Tanzania, to piggy-back and build capabilities to drive development. Furthermore, many local insurance companies, although small, are resilient and innovative organisations that have profound understanding of the markets in which they operate”
In North Africa, new product lines are expected to grow ranging from health insurance, to agricultural insurance and solutions to promote small and medium enterprises (SMEs). Health insurance and expatriate workers in particular look set to represent key sources of growth in the sector across North Africa. Even if domestic instability has tampered short-term returns in the region, life insurance is expected to grow in the long term, in particular in Morocco, Algeria and Tunisia.
“Another positive trend is the development of insurance-specific legislation and the strengthening of a more coherently-regulated sector in many countries that will drive business confidence in the market, and thus encourage investment and new entrants”. Recent developments include the implementation of tighter capital controls in Zimbabwe, Tunisia's amendments to the insurance law that establishes a legislative framework for governance of takaful insurance (July 2014), and the official inauguration in September 2015 of the “The West African Insurance Supervisors Association (WAISA)”, to facilitate exchange between the English-speaking West African insurance supervisors - Ghana, Liberia, Nigeria, Sierra Leone and Gambia - and help harmonising markets in this sub-region (Access to Insurance Initiative).