Insurance and the African Opportunity

If you’re an adventurous insurance broker, then Africa is definitely the place to be! The continent’s economy is expanding at 4.3% each year, outperforming average global economic growth of 3.6%. Coupled with this, Africa’s $64bn insurance market is set to grow due to a rising middle class, continued infrastructure development and rapid technological advances. The last two points in particular, infrastructure and technology development, look set to bring huge opportunities specifically for commercial insurers and brokers.

Numerous African countries are emphasising the need for infrastructure development. Egypt has three major infrastructure projects in place: a $2,6bn administration capital, $2,7bn for transport infrastructure and a $9bn power plant programme.

China is involved in financing and building the Standard Gauge Railway (SGR) line, set to increase Kenya’s freight handling ability between Mombasa and Nairobi. Tanzania has since announced plans to build a railway line to neighbouring Rwanda. The first 300km are being constructed via a Turkish/Portuguese joint venture.

These rail infrastructure developments have sparked the development of logistical hubs in Uganda and the DRC which will be provided for by the UK’s Department for International Development.

Mozambique’s mining infrastructure is also being developed. Plans have been approved for a major port upgrade at Macuse to handle the increased coal haulage by Vale Mozambique. The growth of infrastructure throughout the region in these countries will result in an increased need for the commercial insurance.

Public private partnerships (PPP) have proven extremely useful in many infrastructure projects. The Ugandan government, for example, has successfully partnered with the private sector to provide water and collect charges. Unaccounted-for water losses immediately dropped from 27% to 19%.

PPPs continue to play a key role in infrastructure development and operations throughout Africa, proving that governments are willing to seek alternative solutions to their problems.

Technology – specifically mobile – is enabling greater access to the insurance market. Africa has a notoriously low insurance penetration rate; technology has the potential to change this. Insurance companies should be looking to technology to develop their African footprint through the rollout of value-adding insurtech solutions.

Not only will this lead to improved customer experience, but the data gathered through the use of technology can help insurers and brokers to better understand the risks covered by traditional insurance products and spur the development of new products.

There is an ever-increasing amount of capacity in the African insurance market, thanks to the number of international players setting up on the continent. This had led to intense competition and ever downward pressure on rates, coupled with instances of poor underwriting discipline. The vast majority of African insurance executives (87%) feel rates are too low – and look set to remain that way for the foreseeable future. We are even seeing protectionism in some markets. Increased claims costs are also pressuring the margins of smaller players.

Skills are also a problem. Apart from the more established markets, Africa generally lacks the expertise needed to create, improve and innovate. An opportunity exists, therefore, to develop the talent needed to drive penetration and growth in insurance.

Regulation is another area that presents challenges. Although well-intentioned, enforcement is often inconsistent, which has led to consolidation of some of the smaller players in the industry due to unmanageable and inconsistent capital requirements.

Africa has its challenges but the progress far outweighs the hurdles. It is an exciting time to be doing business in Africa. Partnerships with and empowerment of local African businesses seem to be the vehicle that will have the most impact. With the development that is currently occurring throughout the continent, partnership opportunities abound in Africa for the insurance industry.

A disciplined approach to underwriting, and a more consolidated enforcement of regulation will result in the African insurance sector beginning to reach its full potential.

Chris Charlton

African Insurance Barometer 2017
African Investment Guide 2017
African Business Magazine –

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