• Upping The Ante in Insurance Penetration

Africa’s insurance market is estimated at $64 billion. But Nigeria, despite its potential, is not in the picture because of low insurance penetration. But, the National Insurance Commission (NAICOM) and operators are determined to reverse the trend by driving insurance awareness. Insurance Correspondent OMOBOLA TOLU-KUSIMO reports.

The figures are unflattering. Despite laying claim to being sub-Saharan Africa’s largest and most populous economy, Nigeria’s insurance penetration rate is a paltry 0.3 per cent, compared with South Africa’s 16.9 per cent, which is said to be one of the highest in the world. It also accounts for three quarters of insurance uptake in the region.

Yet, Nigeria’s poor performance in deepening insurance penetration goes back in time. In 2015, for instance, its insurance penetration in the non-life insurance business was a mere 0.2 per cent. It was one of the lowest rates in the world.

Sadly, non-life insurance penetration levels in smaller and less-endowed African countries like Kenya and Morocco were high. Same for life insurance penetration, which remained low in Nigeria.

Media learnt that among the top 10 African life insurance markets, Kenya, Zimbabwe and Cote d’Ivoire had the highest compound annual growth rates from 2011 to 2015. Interestingly, while Nigeria was conspicuously missing, other mature markets with high life insurance penetration rates such as South Africa and Namibia, grew by more than five per cent in 2015.

Overall, the continent’s life insurance real premium growth slowed to 2.8 per cent in 2015, down from 5.1 per cent the year before, but still 1.5 percentage points higher than real non-life premium growth.

However, the African Insurance Organisation (AIO) in its ‘AIO 2017 Insurance Barometer’ presented at the just-concluded conference in Uganda, stated that as life insurance penetration was low in all North- and most sub-Saharan African markets, the growth potential remains enormous.

The AIO survey was conducted by 29 senior executives of regional and international insurance companies and intermediaries operating in Africa.The executives, who participated in the survey, were emphatic that widespread lack of insurance awareness and trust were main factors responsible for Nigeria’s lacklustre performance in the life insurance segment of the market.

The CEOs recommended that leveraging cost efficient distribution channels, such as bancassurance, Internet or mobile phone distribution, will be key to selling life insurance to a larger share of the population living in low income countries, including Nigeria.

South Africa may have heeded this wise counsel. With the near-term outlook for the life insurance industry in South Africa becoming challenging, and given sluggish domestic economic growth, South African life insurers have recently intensified efforts to sell insurance to the lower income segment of the society. Their hope was that this will support growth and broaden the reach of life insurance.

AIO noted that except for South Africa, which is among the most advanced life insurance markets in the world, accounting for approximately 86 per cent of Africa’s total life premiums, most other African life insurance markets are small by international standards.

Apart from South Africa, only Morocco generated a life premium volume of more than $1 billion in 2015. But in the case of Nigeria, AIO noted that regional disparities were huge.

For instance, while the industry, according to the survey, is heavily concentrated around Lagos in the south-west, Nigeria’s north remained largely untapped by insurers. This, it said, was due to challenges related to product distribution in rural areas.

With a volume of $46 billion, or 72 per cent of total African insurance premiums, the AIO survey maintained that South Africa was still by far Africa’s largest insurance market. It listed other major markets to include Morocco, Egypt, Kenya and Nigeria.

As the survey observed, “Non-life insurance penetration levels in nearly all African countries were lower than the global average of 2.7 per cent. Only South Africa was on par.

“At l.9 per cent and two per cent, Kenya and Morocco, respectively, have higher non-life insurance penetration levels than could be expected, based on their economic development.”

The survey pointed out that insurance market development in both countries was facilitated by advanced and well-respected regulatory and supervisory authorities. It added that other positive factors included a strong and fast-growing middle class, rapid urbanisation and large infrastructure projects.

Some of the projects include the standard gauge railway project in Kenya or the $ 3 billion project related to building additional 700 miles of new highways in Morocco.

On the other end of the spectrum, the survey said Nigeria’s non-life insurance penetration was much lower, standing at 0.2 per cent, in 2015, despite its large industrial sector and its wealth in raw materials.

African insurance market potential

The AIO said Africa’s insurance landscape showed that sub-Saharan Africa represents a market of over 935 million people. Combined Gross Domestic Product (GDP) hovers around $1.6 trillion as the continent remains one of the most underinsured regions worldwide.

The organisation, however, said the attitude of Africa’s insurers towards this market is fairly bullish. “On a scale of -5 to + 5 the ranking varies between two and 2.5, depending on the reference year.

“By hindsight, the executives polled stated that their expectations of the market’s development were mildly more positive in 2015, compared with 2016, when the impact of the economic downturn was felt most vividly on insurers,” it said.

The AIO projected that on the back of a positive economic momentum, insurance will expand more rapidly again. “The rather optimistic assessment of Africa’s insurance markets overall reflects the strong fundamentals of the industry.

“With a young, growing and more affluent population, large commodity resources, enormous infrastructure deficiencies and a low insurance penetration, Africa’s insurance markets show many of the prerequisites that point to an accelerated growth path,” the survey said.

The region’s executives jointly agreed that the use of new technologies, in particular brought about by Africa’s pervasive use of mobile phones, and the introduction of a broad range of micro-insurance products will open the doors widely to large sections of the society, which previously had little access to insurance products.

“The combination of these strengths is thought to help improve Africa’s exceptionally low insurance penetration and provide a solid footing for the industry to stride forward with confidence. Africa’s exceptionally low insurance penetration is seen as its biggest opportunity for future growth,” the executives noted.

They also predicted that the continent’s insurance penetration will greatly improve once demand for commodities recover and public investments in infrastructure pick up again. They added that the insurance sector is faced with a young, growing and better educated population eager to protect its newly accumulated assets.

The CEOs further said, “The growing demand for insurance products, both in commercial and personal lines, is met with a broader spectrum of insurance products – ranging from agricultural insurance to micro-insurance and new offerings across personal lines.

“In addition, product distribution greatly benefits from new technologies, such as the increasing use of mobile and internet applications, which greatly enhances efficiency and facilitates access to Africa’s large client segments living in remote areas.”

Other strong underlying factors

According to AIO, African insurance premium volume dropped sharply from $70 billion in 2014 to $64 billion in 2015, as many key African currencies such as the Egyptian Pound and the Nigerian Naira have weakened against the US$ in 2015 and 2016.

“Currency depreciation remains the main cause for the declining premium volumes in US$ terms. However, only two major African insurance markets, Nigeria and Libya experienced negative real premium growth adjusted for inflation in original currency terms in 2015,” the survey said.

It also observed that insurance uptake was very low in Africa due to a high poverty rate and a lack of capital and expertise within insurance companies that would help tap into the market. Also, the lack of effective and transparent legal, judicial and regulatory systems in combination with immature financial markets was an issue.

Besides, the survey said the common use of informal types of insurance such as local safety nets based on transfers from relatives and friends rather than services of regulated and supervised formal insurance contributed to the low penetration.

It, however, stated that a number of underlying positive factors support the outlook for a booming African insurance market. ”A very low insurance penetration rate means high growth opportunities and potential. In addition, the continued growth of international investments in the continent is driving the demand among investors for insurance products,” it said.

Furthermore, the awareness to insure against natural disasters, the survey said, was rising, even as insurers are benefiting from positive changes in regulation and compliance systems. “Shifting demographics, changing cultural norms, an increasing urbanisation as well as the declining influence of the extended family as sources of informal insurance are likely to accelerate insurance sales further,” it predicted.

NAICOM, operators move to drive penetration

The Commissioner for Insurance, National Insurance Commission (NAICOM), Mr. Mohammed Kari, attributed Nigeria’s low insurance penetration to economic recession. According to him, the Commission and operators identified recession as being responsible for the lack of appreciation of insurance.

The NAICOM boss, however, said the Commission was addressing the issue with publicity campaigns, which have been structured by the Insurers Committee. “The way out is to continue to advocate for people to appreciate insurance fast. We believe that with insurance awareness campaign, people will appreciate insurance more,” Kari stated during the conference in Uganda.

Explaining further, the Commissioner said: “The AIO Barometer also reported lack of growth in premium income from Nigeria particularly on the general insurance aspect. But it is the same old issues of lack of appreciation of insurance, which is the reason why the market is simultaneously leading the awareness campaign.

“It is pertinent to state that the barometer also identified one major factor, which is that insurance is not something people buy in our part of the world. They buy only when they have excess spending. Unfortunately, the economy is bad now and most people relegate insurance to the background in the list of their budget. This problem has to with individual or personal lines.”

Kari also said the problem of the public, on the other hand, was related to the head of organisations. “If the organisation’s head does not accommodate insurance in his personal understanding, it will also reflect officially, unfortunately. So, other than targeting the individual clients, we are also working on the public sector especially,” he added.

To drive home his point, the NAICOM boss pointed out that there is no energy provider or marine insurer whether cargo or oil that does not appreciate insurance. “But it is the individual awareness that is lacking and if we can change that a little the impact will be huge,” he said, pointing out that the Commission was launching the Market Development and Restructuring Initiative (MDRI).

The Managing Director of Old Mutual, Raimund Snyders, said operators in Nigeria and other countries must deal with the challenges hindering insurance penetration in the country.

He listed some them to include poor insurance awareness, remote or dispersed rural clientele, inconsistent communication technology, lack of innovation, over or lack of appropriate regulation; unreliable or poor income levels; complex products; corruption and language diversity.

To encourage penetration, Snyders, who said there is a lot to be learnt from South Africa, said operators must create awareness and educate the people; implement compulsory insurance demand scheme; recapitalisation and consolidation policies of government and the insurance regulatory authorities, smart contracts, block chain and bitcoin micro-insurance and use of technology.

For the Managing Director, Custodian and Allied Insurance, Mr. Wole Oshin, Nigerian consumers are still insufficiently entrenched in the financial services system. He pointed out that a poor and underdeveloped consumer lending market was a key obstacle, if they are to achieve a greater insurance penetration.

“In Nigeria, 90 per cent of all cars on our roads are fully paid for, a contrast to what obtained in more mature markets. If consumers lease or borrow to finance the acquisition of goods, the rate of insurance penetration will automatically surge,” he added.

The Managing Director, AfricaRe, Nigeria, Corneille Karekezi, on his part, said technology will have a massive impact on the whole insurance value chain, including, but not limited to customer acquisition, product distribution, pricing, risk management and predictive analytics.

He stressed that technological revolution will also require a new understanding of traditional risks, such as motor and emerging risks, such as cyber.

The Managing Director, UAP Old Mutual, Uganda, Mr. David Kuria, stated that a strong political will and active government support were needed to advance the insurance sector in Africa.

He observed that compulsory insurance coverage needs to be more strictly enforced, new regulations, for example in the areas of Bancassurance and micro-insurance, ought to be implemented sooner rather than later.

The Managing Director, NEM Insurance Plc, Nigeria, Tope Smart, noted that one of the observations of the AIO Conference was the level of insurance penetration in Nigeria among other countries that has remained the same in between last year and this year, while other countries like Kenya and some two other countries were able to grow their level of penetration.

He blamed Nigeria’s poor outing on recession. “Nigeria was in recession last year and we are yet to come out of it. That means that the development of government activities in the country was very low. Insurance cannot be in isolation and we are working hard to ensure that before the end of the year Nigeria will be out of recession,” he said.

Smart, however, said operators expect that there will be an improvement in the level of government activities this year, and that transactions relating to insurance will improve and operators will increase their insurance penetration.

“We also know that we need to drive awareness because people now need insurance more. The insurance rebranding programme of the Insurers Committee is part of the things that I think we have to look at,” he added.

Rogers & Co. Ltd, a listed international services and investment company established in Mauritius in 1899 in a presentation on, “Driving Insurance Penetration” said there is need to develop affordable need-based products and build an appropriate delivery system.

The company said they must render service that is simplified to customers, have speed and convenience, while they should also provide lifestyle data, be social media savvy, target marketing, prevent business model and ensure usage based costing.

The General Manager, Reinsurance, Namib Re, Namibia, Rudolph Humavindu, said the systematic use of data will help insurers to further personalise customer experiences. Insurers will be able to create new products tailored to the specific needs of individuals and to make relevant risk recommendations, leading to greater customer satisfaction and eventually lower premiums.