Insurance growth opportunities in Southern Africa

September 16, 2021

Industry research shows that Africa’s insurance industry is valued at cUSD68 billion in terms of Gross Written Premium (GWP).

However, markets are inconsistent in terms of size, mix and degree of consolidation, with 91% concentrated in just ten countries.

According to Mckinsey & Co, South Africa is the largest and most established insurance market and accounts for 70% of total premiums. In the Southern Africa region, c54% of premiums are for life insurance.

Nonlife insurance, however, plays a larger role in anglophone West Africa, North Africa, East Africa, and even more so in francophone Africa.

While most African countries have experienced double-digit insurance growth in CAGR in local currency over the last five years, this has mostly been driven by economic growth, rather than deepening market penetration.

The expectation is that the bulk of the growth in Africa is likely to come from pensions and individual life insurance—which is the fastest growth line of business on the continent, although starting from a smaller base compared to nonlife insurance.

While motor insurance is the largest contributor to nonlife insurance—driven by requirements for a compulsory minimum level of insurance, often third-party liability in countries like Morocco, Kenya, Zimbabwe, Nigeria, and Egypt—accident insurance, health insurance, and property insurance have all shown faster growth in recent years.

The prospects for growth in commercial lines are also good. In Nigeria, for example, commercial insurance has performed strongly, with oil and gas growing at 9% per annum and marine and aviation at 10% per annum between 2014 and 2018.

There is clear evidence that key trends could unlock insurance growth in Africa. Growth in Africa’s insurance sector is being driven primarily by economic growth rather than deepening market penetration. And where penetration is occurring, it is mostly accompanied by structural reforms.

Market liberalisation and deregulation, the enforcement of compulsory insurance, increased access through wider distribution, public–private partnerships, and regulation to support innovation and access have all been shown to build consumer trust and develop more resilient insurance industries with better-protected populations in comparable markets.

The shift to digital channels in Africa is well underway, and with that comes greater expectations of service delivery. While we are seeing several insurers starting to digitize customer journeys, significant opportunities still exist to accelerate this in many markets. To meet rising demand for digital solutions, Insurtechs have been quick to step in. We note that the Covid-19 pandemic has accelerated this trend, by driving demand for digital and remote channels, and we expect this to continue beyond the crisis.

An interesting trend that is taking shape is that South African insurers are looking for other ways to expand their businesses and are now moving into the broader Southern African insurance sector which represents an underexplored market.

This is because the South African insurance market looks saturated. Africa’s aggregate insurance penetration rate in 2019 was only 2.78%, compared to the global average insurance penetration rate of 7.23%. With increased entry, participation, and expansion from traditional insurance companies and new microinsurance companies, the potential for growth across the continent is immense.

Sanlam, for example has also been expanding in the region and has taken a strategic position in Zimnat, a leading player in the insurance and wealth management industry in Zimbabwe. Overall, there is also an opportunity for facultative inward reinsurance in markets such as Zimbabwe, Namibia and Zambia.

This would involve a direct insurer in South Africa writing foreign business by taking on the risk from a foreign domiciled insurance company. The major benefit to facultative inwards reinsurance is that as they can still assume the risk without a physical presence in that country.

 

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

 

 

 

 

 

 

 

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