BATANAI MATSIKA
According to Allianz Insurance, the 2020 global gross written premiums in Life (excluding Health) and P&C declined by -2.1%, or around EUR80bn, to EUR3.730bn.
The Life business is estimated to have declined by -4.1%.
This decline was in line with expectations and it should be highlighted that the weak performance of the Life business has meant that on average, households and companies have been spending an increasingly smaller share of their income on risk protection.
Given a volatile economic environment amid increasing natural disasters and health risks, this points to growing protection gaps.
That said, it is envisaged that the Covid-19 crisis will mark a turning point in this respect, leading to a new awareness of risks.
Looking at the African insurance sector, the limited disposable incomes amongst the general population implies that life insurance uptake is low.
We note that insurance penetration levels in Zimbabwe of c4.1% remains low when compared to the developed world. Except for South Africa, insurance markets in Africa are very small.
Among the largest life markets in Africa, Ghana, Kenya and Morocco have enjoyed very strong insurance premium growth over the past few years.
In our view, the low insurance penetration levels present a significant opportunity for insurance companies.
New product developments in life insurance coupled with a growing middle class, may in the long term help increase insurance penetration levels.
The importance of the life insurance sector in Africa.
It is a fact that Sub-Saharan Africa (SSA) needs private finance for economic development.
International finance is available but is costly and creates vulnerability to financial instability. Domestic savings offer a cheaper and more stable source of funds. However, this requires savings levels to be increased, and savings to be retained within host economies.
Life insurance is therefore an important part of the financing agenda. This is because as economies deepen, life insurance penetration increases, raising savings levels by providing contractual savings for households.
Life insurance also helps to stabilise household welfare and complements public welfare provision. Policy Approaches to Support Development of Life Insurance:
It is of paramount importance to put in place policies that assist in accelerating the development of life insurance markets.
Those countries with active policy have seen markets develop at a faster pace than would be expected relative to their GDP.
The most important area for active policy is to promote a liberalised, well-regulated private sector that includes large scale firms.
Such large-scale firms are most commonly those with regional or global businesses.
They include domestic businesses that are active in expanding regionally and foreign participants.
Specific benefits of large-scale firms include the following;
λ Contributing to scale and stability in the sector. Stability in life insurance markets requires large-scale firms.
These have deep capital bases and diversification benefits derived from risk pooling.
λ Accelerating the building of distribution networks: Large-scale firms bring experience in building and managing agency networks and joint ventures with local firms. They disseminate appropriate standards of customer protection and service.
This accelerates life insurance market development through rapid expansion of high-quality distribution networks.
λ Driving knowledge and technology transfer.
Large-scale firms introduce global ‘best practice’ in terms of risk management, accounting, actuarial work, legal, compliance and corporate governance.
They also bring best practice in relation to supervision and customer relations.
This enables knowledge and technology transfer including to national employees and regulatory bodies.
Overall, life insurance has the potential to both mobilise domestic savings and investment and to create employment and enhance household welfare, thereby helping to drive economic growth and development at a crucial time in Sub-Saharan Africa.
Supervisors such as the Insurance and Pensions Commission of Zimbabwe (IPEC) can also take a leading role through advocacy as well as financial awareness campaigns on life insurance.
IPEC has in the past conducted financial literacy programmes on insurance and pensions with a view to enhancing consumer confidence, insurance penetration and the pension coverage ratio.
The financial awareness initiatives include training of journalists on insurance and pensions to enhance coverage about the industry, issuance of bi-annual consumer education newsletters, trustees training workshops, road shows, television and radio interviews, news, publishing of various newspaper articles, brochures, digital and social media.
Batanai Matsika is the Head of Research at Morgan & Co, and Founder of piggybankadvisor.com. He can
be reached on +263 78 358 4745 or batanai@morganzim.com / batanai@piggybankadvisor.com
