Insurance/Insurtech Trends in Africa!
Today we bring you Part II of our Regional Profile on Africa. This two-part profile draws on our inaugural Global Trend Map (download your complimentary copy here), in which we journey through the world's major insurance markets: Europe, North America, Asia-Pacific, LatAm, Africa, the Middle East and Central Asia.
In Part 1, we provided an overview of the African market, breaking the continent down into three broad sub-regions (North Africa, Sub-Sahara, South Africa), and identifying a further four Insurance/Insurtech themes for discussion with our two local commentators, Kenya-based George Otieno Ochieng, Claims Manager at Britam General Insurance Company, and Belhassen Tonat, Head of Non-Life at Munich Reinsurance Company of Africa Ltd in South Africa:
1) Taking microinsurance from theory to practice
2) Insurance market development in Africa, including regulatory, educational and multinational initiatives
3) Leveraging tech to drive a lower price point for low-income market segments
4) Overall growth prospects for African Insurance
We discussed the first theme — taking microinsurance from theory to practice — in Part I. In today's Part II, we take you through themes 2 to 4.
For all the facts and stats, download your complementary copy of the Global Insurance Trend Map here!
2. Creating the Right Conditions for Growth
In Part I of our Africa Profile, we explained how African insurers can solve the problem of low-cost, large-scale distribution by forming distribution partnerships with large players outside of the industry, such as seed distributors and mobile-platform providers. These partnerships certainly help speed the development of the market but distribution is not the only ‘axis’ on which insurers in the region should be partnering.
There is plenty of international expertise available to African insurers, on everything from big data and analytics to claims-handling and counter-fraud, all of which can be used to rapidly build out their next-generation capabilities and thereby fast-track the overall business. However, the problem as ever is how to tailor things to local needs.
Munich Re's Belhassen Tonat stresses the importance for international companies of tapping local knowledge, particularly in relation to culture, and advocates a tripartite model as a solution to this, whereby an international reinsurer, in addition to providing reinsurance, works together actively with a local insurance player in order to deliver products to policyholders on the ground which are fit-for-purpose and cutting-edge in equal measure.
‘As a reinsurance company, we look to partner with local insurance companies in Africa to help them to expand their product tranches,’ he explains. ‘We bring them products that have been sold outside of Africa – in Europe, Asia and America – and work with their local knowledge on how to adapt these products to African needs.’
Much of the time, what the international player brings to the table is an advanced capability, such as a big-data ecosystem or toolbox. Tonat gives telematics in auto insurance as an example:
‘The biggest book of business here for the local entities is usually the motor book. And there’s a tremendous amount of data that we have on motor insurance here. And if you take this data and apply predictive big-data analytics to it, the information you get out is great.’
These data insights have facilitated the move towards UBI products in Africa, such as pay-as-you-drive and pay-how-you-drive, with insurers developing individual risk profiles for each driver.
‘These are the kinds of data-analytics skills that a global reinsurer can bring to a local player to help them better manage their risks and also enhance their products – and ultimately it helps local insurance companies to differentiate themselves in the market,’ Tonat concludes.
While forging the right links with large internationals can create ideal conditions for knowledge transfer, this is not the only form of outreach that insurers should be actively pursuing. Ingrained cultural attitudes towards insurance remain a significant factor negatively impacting the industry’s overall growth, and insurers can benefit massively from intervening here.
‘People tend to have absolutely no, or very little, knowledge about insurance,’explains Britam's George Ochieng. ‘Insurance is perceived to be a product only sold to the elite class, so people think that whoever is buying it is not the common man.’
It is true that, the more people in Sub-Saharan Africa who reap the benefits of being insured, the more it will come to resemble an everyday, rather than an elite, product. However, the industry is also being proactive in changing mindsets in the population at large.
The regulator has an important role to play here, and the Insurance Regulator of Kenya for one has been active with media campaigns and roadshows.
‘There has been a huge campaign to create awareness around what insurance is all about, to change the perception that insurance is only meant for the rich or the perception that insurance doesn’t add any value,’ observes Ochieng. ‘Insurers cannot grow if they sit down, they have to shout loud about it and they have to make the public aware of the importance of insurance.’
Ochieng’s employer, Britam Insurance, promotes insurance, not just as a product but also as a career path, by giving talks and presentations at colleges and universities. He also mentions that the Kenyan Minister of Education has been active getting insurance onto the school curricula so that everyone, by the time they leave school, has some basic understanding of insurance.
The outlook for regulatory reform in Africa is positive, fostered by the need for a healthier insurance market that can grow and prosper. We believe that risk-based capital principles will help insurers to strengthen technical capabilities, improve their capacity to retain more risk and increase the availability of funds for reinvestment.
Sub-Saharan Africa — the evolution of insurance regulation, EY
The fostering role of the regulator is not just limited to the PR side of the industry but extends deep into the detail of how it regulates the day-to-day practice of insurance. A case in point is microinsurance, which the regulator has a tendency to examine through the lens of traditional insurance.
‘When you develop a microinsurance product which maybe overlooks certain principles of insurance, then they’ll start questioning why you are trying to deviate from the norm,’ Ochieng elaborates. ‘They will not want to take a risk and try to develop a product that is not in line with certain principles of insurance.'
Microinsurance does not just require a new approach from the perspective of costs and distribution – we see that a change in thinking is also necessary from a regulatory point of view. And this is not just for the profit of insurance companies but for the benefit of the population as a whole, so few of whom currently enjoy the advantages that insurance can bring.
‘I think lately the regulator has woken up and they have realised that, for them to be able to develop this market, they need to be realistic in terms of their demands and the questions that they are asking,’ comments Ochieng.
He also praises the regulator for their recent allowance for simpler policies, which means that customers can better understand what they are buying and the attached terms and conditions. However, he believes there is still a long way to go before the regulatory environment is fully conducive to something as radical as microinsurance:
‘There need to be some huge and drastic changes, if we are to see the penetration and the level of the insurance industry grow in this particular segment of the market.’
More generally, regulation impacts how insurers can use customer data, and Tonat notes that the landscape in this regard is quite heterogeneous across Africa:
‘I think we should work towards the homogenisation of standards of data exchange. IoT will allow you to have a lot of data, but quite another issue is whether you are allowed to collect it. So here, the legislators should do their homework and create a platform for sharing anonymised, encrypted data, so that we can enhance the accessibility to data.’
In South Africa at least, Tonat believes the regulator is now listening to the industry’s needs, and this involves accommodation not just with traditional insurance companies but also with the emerging Insurtech and Fintech scene. He believes that a positive attitude at a regulatory level will help to create innovation hubs in Africa along the lines of Singapore.
‘The regulator in South Africa, Kenya or Nigeria, they look to what is happening in Singapore and they see that most innovations are coming out there because of the innovation-friendly regulations,’ he explains. ‘So they will think to themselves: why shouldn’t we do similar things and be proactive on the regulation side, so that we attract these innovations also?’
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3. Lowering Costs Through Technology
Technology and technological investments are as much at home in low-price operating models as in high-price ones. We have seen, for example, how mobile phones and mobile payment platforms like M-Pesa are facilitating low-cost distribution, and technology also has an important role to play improving efficiency and service.
‘These things cannot happen without proper investment in technology,’ says Ochieng. ‘So, in Kenya and Southern Africa as a whole, we are seeing a great level of technology investment. For me, no organisation can improve the penetration level without investing in technology.’
As a result of this, the level of technology adoption within the industry is already high in Africa. The move from paper to digital in the back office is well underway, and 360-degree Customer Relationship Management (CRM) systems are already firmly established.
‘We have robot technology and we have eliminated the paperwork,’ Ochieng explains. ‘So, when a client rings up wanting to ask a very simple question, all we need is the policy number, name and identification number. Once you have those three parameters, we can access all the information regarding that particular client.’
Ecosystem partners, like reinsurers, whose role in product creation we noted earlier, can also play a role in this more general back-office transformation.
‘As a reinsurer, we ask ourselves what kinds of optimisation processes we can bring to Africa in order to make insurance more attractive for the new generation, an easy product to sell,’ comments Tonat. ‘And here we are tapping into our experience of the digitalisation of insurance value chains.’
Alongside low penetration (which we discussed in Part I of this profile), the other key challenge identified by Ochieng (speaking primarily from a Kenyan perspective) was a high incidence of insurance fraud, especially in the auto and health lines. This remains a massive cost for the industry both within Africa and globally, and unfortunately there is no quick-fix for eliminating it.
Tonat points to the progress made in counter-fraud analytics for separating fraudulent claims from legitimate ones, while Ochieng believes the problem needs to be addressed at more of a grass-roots level and that more drastic court action should be taken against fraudsters in Africa:
‘I think it’s time that we become aggressive and say that, if there’s a fraud, we need to use the full force of law to address that problem.’
Ochieng acknowledges the negative role played here by prevailing attitudes towards the insurance industry, pointing out that fraud within banks is treated with much greater severity. One positive move he calls attention to, though one that is yet to yield significant results, is the Kenyan regulator’s recent establishment of a Fraud Investigation Unit.
So far in this Regional Profile for Africa, we have covered how technology and partnerships are allowing insurers to bring their front (distribution) and back offices into line with the basic requirements of African customers. The next stage – or more likely a parallel effort – is the elaboration of IoT-enabled, UBI models, like the in-car telematics example we gave earlier. So, what is the state of IoT in Africa?
"We believe there are significant opportunities to leverage IoT devices to better serve the needs of under-insured and un-insured customer segments, such as non-standard risks, coastal and flood exposures, and small business startups. Additionally, IoT can improve and enhance the insurance experience, and help insurers understand and manage underwriting risk and claims exposure."
Sam Evans, Managing Director at Eos Venture Partners
Tonat believes that, in Africa, insurance IoT is coming first in high-industrial businesses, such as mining, which are found the length and breadth of the continent and represent in many African nations the biggest source of foreign-currency income.
‘In Africa, we have a lot of mining risks, be it gold, uranium, platinum or coal,' he elaborates. 'And if you put a sensor in the belt of the mine, then you will detect what time it’s going to break down and you can replace it before that. That means you can reduce business-interruption from an insurance perspective, so you’ve enhanced the risk and the premium goes down. This helps the profitability of the business and leads to more economic premium levels in the industry.’
As for the personal lines, Tonat believes that Africa as a whole is not quite at the level of Europe and America, but that this is a question of when, not if.
‘In the personal lines, I think we are at an advanced level in South Africa, and we see a little bit in North Africa,’ he clarifies. ‘Then, in the rest of Africa, it is only a matter of time and it will not need the 10-15 years to develop as was the case in Europe and America: it is a case of fast adaptation.’
4. Outlook for African Insurance Growth
In Part I of this profile, we sketched out two big opportunities for the industry in Africa, the middle class and the micro-class, and examined the ways in which (re)insurers are clearing the hurdles to realising the full potential of each. So, working off this, what can we say about the overall growth prospects for insurance in Africa?
To fully answer this question would require us to examine the wider structural issues that the continent will face over the coming years, something which is outside the scope of this content series. One long-term issue that we do draw attention to though is climate change.
We underlined at the start the extent to which Africa is reliant on agriculture and, consequently, on the weather. Climate-related risks like droughts already have a higher profile here than elsewhere in the world, and the likelihood is that their frequency and impact will only increase. Add to this the macro effects on the continent’s economies and societies, and we are left with a somewhat uncertain picture as to the future health of insurance there.
‘You’ll find that the economies of most African states, except those ones with natural resources, have been impacted by global warming and changing weather,’ remarks Ochieng. ‘So, what happens to insurance? The level will probably remain stagnant or lower than what it was before.’
We cannot comment on the long-term prognosis but, suffice it to say, all the immediate indicators for growth are positive. Affirmation of this can be seen in the interest the international insurance community is taking in the continent, which includes, but certainly is not limited to, the tripartite reinsurer-insurer-policyholder arrangement we have touched on in this write-up.
‘The international community is definitely interested,’ says Tonat. ‘We’ve seen in the last few years a wave of mergers and acquisitions of insurance companies, as well as the establishment of the European brands in Africa in order to tap into the African potential over the next few years.’
One clear point in favour of the African opportunity is the potential not just for growth but for rapid growth. While Ochieng believes that the expansion of the middle class will be gradual, growth will potentially be much faster with microinsurance.
"Microinsurance initiatives have often come unstuck on carriers’ unfamiliarity with the sorts of complex non-standard risks faced by microinsurance prospects. Now, microInsurtech ventures are revitalising the sector through technology — a case in point is Blue Marble Microinsurance, which is leveraging satellite imagery, remote sensors and two-way mobile communications to offer affordable, sustainable drought protection to smallholder maize farmers in Zimbabwe."
Rachael Gore, Head of Engagement at Insurance Nexus
If, for the time being, the mature South African market remains the key centre for insurance activities in the continent, there are nonetheless several emerging hubs across Sub-Saharan Africa. Tonat points above all to Nigeria, Kenya, Ivory Coast and Rwanda:
‘These countries have a huge potential for development in the future, both on the digitisation part and the traditional part. If you look to a market like Nigeria, with 200 million inhabitants, this is a huge market, with huge potential, where you can see a lot of things happening. Kenya is also a market where a lot of Insurtechs, mobile companies and start-ups are changing the business model of insurance. These kinds of market have a bright road ahead of them inventing the insurance of the future.’
That concludes our Regional Profile for Africa; if you'd like to read Parts I and II together (and much much more!), simply download the full Insurance Nexus Global Trend Map here. Next week, our world tour of Insurance and Insurtech trends resumes in the Middle East, where we will be discussing, among other things, regulation, customer service and regional growth prospects.
For any inquiries relating to the Insurance Nexus Global Trend Map, this on-going content series or next year's edition, please contact:
Alexander Cherry, Head of Research & Content at Insurance Nexus (firstname.lastname@example.org)