Insurance

Africa’s insurance industry faces new challenges

African insurance regulators, CEOs and experts share views at high profile meeting in Dakar, Senegal

By Isaac Khisa

For years now, digital advances have been transforming a range of industries. The insurance industry especially in Africa has generally been slow to adopt new digital approaches, but times are now changing.

This shift is manifesting itself in major – and disruptive – trends in four areas: product design, pricing and underwriting, distribution and administration, and claims management, with leading insurers already playing a frontrunner role in driving their adoption.

But how can African-based insurance firms cope with the pace of technological advancement to remain relevant and still make money? That was the main issue discussed during the high profile Continental Reinsurance 4th CEO Summit held in Dakar, Senegal from April 5-7.

Femi Oyetunji, the chief executive officer of Continental Re told his guests that besides usual challenges that the insurance industry is grappling with such as under insurance, inappropriate pricing, and moral hazards, a new challenge has emerged.

“The pace of technological advancement is unbelievable. Our industry may become obsolete if we do not build a lasting legacy,” he said, “ We created this platform, Continental Re CEO Summit, to bring industry leaders together to deliberate on issues like this.”

To make the situation even worse, Oyetunji said a number of African countries have also been faced with currency devaluation due to low commodity prices on the international market rendering balance sheets of insurance companies on the continent easy preys for acquisitions.

The worst performing currency in 2015 worldwide, according to Bloomberg data was the Zambian kwacha, which lost around 40% of its value against the dollar as the country’s exports plunged. Zambia is heavily dependent on sales of copper, the price of which slumped by a quarter during the year.

Ghana’s cedi lost nearly 20% over the year, while in Mozambique; the metical lost 36%. In Nigeria, one of the continent’s largest economy, the Central Bank restricted access to dollars, in an attempt to slow the flight of hard currency out of the country, and to strengthen the local currency, the naira.

“For that, I appeal to our regulators, let it be Africa for Africans…Let us keep African premiums in Africa,” he said.

But this can’t be achieved if the insurance industry is fragmented, he said. For instance, Nigeria has 50 insurance companies, Ghana 46, Kenya 47, Mozambique 18 companies, and Liberia with a population of only four million has 20 insurance companies, and Uganda 29.

As such, he suggests the need for insurance firms to merge operations within country and across borders, so that they have large insurance and re-insurance companies with balance sheets that are better able to ensure lasting legacy and compete with the biggest and the best in the world. “Otherwise, the big globals will pick us up for cheap one by one until there’s no one standing. Guess who the losers will be. In this, I am also speaking to the brokers,” he said.

This comes at the time insurance premiums in Africa dropped from US$72bn in 2013 to US$69bn in 2014, according to the latest data from the Africa Insurance Organization’s survey dubbed Africa Insurance Barometer 2016.

Life insurance accounted for about two thirds of the 2014 total, with the remainder going to Non-Life insurance. South Africa dominated the African insurance market with 71% share of the total premiums.

In the 10 largest markets – South Africa, Morocco, Egypt, Nigeria, Kenya, Algeria, Angola, Namibia, Tunisia and Mauritius- generated a premium of US$ 63.4 million, or 92% of total African premiums.

However, insurance penetration accounted for only 2.8% of African Gross Domestic Product. And with the exception of South Africa and Namibia – where insurance penetration levels reached 14% and 7.3% respectively – the contribution of insurance to Gross Domestic Product was significantly lower than the global average of 6.2% in all other African countries.

Kaddunabbi Lubega, the chief executive officer of the Insurance Regulatory Authority of Uganda said the authority is encouraging local insurance companies to have strong financial standings to be able to underwrite bigger risks.

“As a regulator, we have adopted a risk-based supervision to ensure that insurance firms have enough capital to undertake risks,” he said, adding that it is better for a country to have fewer insurance companies but with stronger financial muscles to handle bigger risk than with many smaller insurance firms with limited capital.

He also suggests that merging small insurance companies to handle bigger risks not only strengthens their financial capability but also brings onboard new skills to enhance corporate governance.

Kaddunabbi also revealed that they have advised local insurance companies to come up with products that can be underwritten online as long as they
meet the requirements in bid to increase insurance access and deepen penetration.

Going forward

Kumar Utpal, the deputy vice president in-charge of sales in South Africa and Mauritius at the Mumbaibased 3i Infotech Limited said it is time for African insurance firms to widen their distribution channels to include selling their insurance products through stores and contract centres, banc assurance, kiosks, hospitals, shopping malls, and online to grow their business as it is being done in some countries including Australia and India.

For instance, MetLife Australia is selling Life Insurance Policies via SunCorp Banking channels leveraging on banca assurance while Insurance Australia Group Limited / Wesfarmers Australia is selling insurance policies via full service retail chain supermarkets.

On the other hand, Virgin Money is selling AIG South Africa Insurance plans through their stores and contact centers while Indian insurance companies are setting up offsite center in hospitals, shopping malls, and schools to sell Insurance via tablets. The emergences of insurance aggregators such as InsuranceBazaar.com are now tying up with multiple insurers to give best quotation to customer online.

Utpal said insurance companies on the continent also need to integrate their underwriting and claims processes with Location Intelligence System via Google Maps to understand their exposure in a particular area, making it easy to
ascertain the risks associated with the product.

“The insurance companies need to integrate with Social Media sites such as Facebook, Instagram, and Twitter among others to understand the customer behavior to access the risk and identify fraud in claims processes,” he said.

“Companies like Discovery (based in South Africa) has integrated vitality based loyalty card system which tracks customer’s buying behavior, fitness related information to understand the risk associated with that customer.”

Utpal said insurance companies also need to unveil Usage Based Insurance (UBI) to help them identify customer driving behavior and risk associated with that and determine the premium to be paid for motor vehicle insurance products as well as provide mobile based applications to policy holders which helps them in “Self Service” including claims intimation, policy issuance and renewal.

These initiatives, he said, will keep the African insurance firms at par with those in developed countries and fast grow their business.

Aziz Yerima, the CEO of PayDunya, an online payment solution based in Sénégal said time has come for business entreprises including insurance companies that do not digitalise their services to run out of business.

He said digitalizing services increases product access to customers and noncustomers, eliminate cash management costs and reduce workloads related to accounting and reconciliation.

The Independent

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