Insurance

AIO: Regulatory failings, skills shortage holding Africa back

Soares

Africa’s insurance and reinsurance market shows signs of growth despite economic headwinds, according to the 2nd Africa Insurance Barometer report.

Investment in infrastructure and a young population were touted by the study as strengths for the continent, with the $64bn insurance market outperforming the wider economy, which has been hit by the drop in oil and commodity prices.

The survey of 29 senior executives from re/insurers and brokers was launched today at the African Insurance Organisation’s (AIO) conference and general assembly in Kampala, Uganda.

“A majority of our interviewees assume that premiums will outgrow GDP,” said Prisca Soares, the AIO’s secretary general.

“The executives interviewed for this year’s edition expect the underlying market fundamentals to prevail over the economic decline that many markets witnessed in 2016,” she said.

The study cited Africa’s young, growing and more affluent population as well as investments in infrastructure and exploitation of the continent’s raw materials as driving demand for insurance protection.

Mobile technology and the internet were emphasised as enablers for insurance distribution for the continent’s growing middle class.

“However, inadequately harmonised regulatory frameworks across the continent, which frequently are poorly enforced, as well as the persistent lack in skills and local talents remain the industry’s soft spots,” said the report.

Access to local skills and talent is a challenge for African insurers, according to 70% of responding executives.

“While expertise is generally hard to come by in small markets, specialists, such as actuaries, are scarce even in the more populous markets,” said the report.

“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,” the barometer continued.

Some regulatory requirements had tightened in the past year, the survey suggested.

Interviewees were concerned about overregulation and authorities’ tendency towards burdening insurers with costs, complexity and “incoherent regulatory enactment”.

There was also a warning that unless regulators take action, too many African insurers are insufficiently capitalised and lack financial stability, “which could dampen consumer confidence”, the paper added.

Prices for insurers were most competitive in commoditised commercial lines, the barometer noted, with higher rates on offer in more niche specialty lines of business, as well as some personal lines.

Almost 80% of the study’s interviewees predicted stable or even rising profits, with personal lines viewed as less volatile and exposed to cutthroat competition.

“Africa’s insurance penetration, which currently stands at 2.9% 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,” Soares added.

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