Tracing the Insurance Development in Africa

With special emphasis on Micro-insurance

Presented by Parimal Bhattacharya

Insurance in AfricaDue to limited time available, let us right away start with a comparison of Insurance Scenario of Africa in 2005 and in recent times.

In 2005, the African continent had a life premium of $ 28 Bn and a non-life premium of $ 12 Bn. The level of Insurance Penetration was 3.33% for life and 1.47% for non-life. The Insurance density was $ 30.7 for life and $13.5 for non-life

Comparative Status of Population and GDP Among Select Countries in 2005 (Source: Swiss Re publication for 2005)

COUNTRY POPULATION IN Mn GDP IN Bn USD LIFE PREMIUM

IN Mn USDNL PREMIUM IN Mn USD

AFRICA KENYA 34 34 153 348 NAMIBIA 2 2 350 150 SA 47 240 26000 7300 EGYPT 74 100 300 460 NIGERIA 132 90 70 500 MOROCCO 32 51 370 1100 TUNISIA 10 29 50 540 AFRICA 872 1216 28000 12000 WORLD 6450 44,450 1974000 1450000

Penetration and Density(Source: Swiss Re publication for 2005)

Life Non-life

CountryInsurance

PenetrationInsurance Density

Insurance Penetration

Insurance Density

Premium/

GDPPremium per

capitaPremium/

GDPPremium per

capitaKENYA 0.78% $5 1.79% $10.20NAMIBIA 5.90% $172 2.46% $73SA 10.80% $558 3.00% $156EGYPT 0.34% $4 0.52% $6.2NIGERIA 0.09% $0.50 0.62% $3.7MOROCCO 0.71% $11.7 2.76% $35.3TUNISIA 0.17% $4.8 1.90% $53.9WORLD 4.30% $300 3.20% $220

Non-life premium has grown by 4% in 2009, 5.8 in 2010 and 4.9% in 2011 It stood at USD 22 Bn, which is 1.1% of world premium. While Life premium saw a growth of 1.3% in 2011 and stood at USD 46 Bn after seeing a fall of 11% in 2010. That is 1.8% of world premium. Overall situation as of 2010: (Source: Swiss Re publication for 2010)

COUNTRYPOPULATION

in Mn

GROSS DOMESTIC

PRODUCT in Bn USD

LIFE PREMIUM in

Mn USD

NON LIFE PREMIUM

in Mn USD SOUTH AFRICA 50.50 364.00 38667.00 9965.00EGYPT 84.5 219.0 647.0 938.0NIGERIA 158.3 208.0 157.0 844.0MOROCCO 32.4 91.0 825.0 1,759.0TUNISIA 10.4 44.0 113.0 662.0KENYA 40.9 32.0 337.0 661.0NAMIBIA 2.2 11.0 610.0 277.0TOTAL AFRICA 1,031.3 1,727.0 42,796.0 19,686.0WORLD 6,917.0 63,048.0 2,507,715.0 1,816,524.0

Worldwide position 2010

COUNTRYPOPULATION in Mn

GROSS DOMESTIC

PRODUCT in Bn USD

LIFE PREMIUM in Mn USD

NON LIFE PREMIUM in

Mn USD

NORTH AMERICA 344.10 16,068 557,007 718,847

LATIN AMERICA AND CARIBBEAN 583.70 4,848 54,458 73,453

EUROPE 811.00 20,066 955,553 657,520

ASIA 4,111.30 18,948 858,466 304,980

AFRICA 1,031.30 1,727 42,796 19,686

OCEANIA 35.50 1,392 39,436 42,038

WORLD 6,917.00 63,048 2,507,715 1,816,524

2010 contd.INSURANCE PENETRATION

COUNTRY LIFE BUSINESSNON LIFE BUSINESS

TOTAL BUSINESS

NORTH AMERICA 3.47 4.47 7.94

LATIN AMERICA AND CARIBBEAN 1.12 1.52 2.64EUROPE 4.44 2.99 7.43ASIA 4.54 1.59 6.12AFRICA 2.48 1.14 3.62SOUTH AFRICA 10.62 2.74 13.35OCEANIA 2.83 3.02 5.85WORLD 3.98 2.88 6.86

2010 contd. INSURANCE DENSITY in USD

COUNTRY LIFE BUSINESSNON LIFE BUSINESS

TOTAL BUSINESS

NORTH AMERICA 1,618.6 2,088.9 3,707.6

LATIN AMERICA AND CARIBBEAN 93.3 125.8 219.1EUROPE 1,098.8 740.3 1,839.1ASIA 209.0 73.2 282.2AFRICA 41.5 19.1 60.6SOUTH AFRICA 765.2 197.2 962.4OCEANIA 1,109.3 1,182.6 2,291.9WORLD 362.5 262.6 625.2

2010 contd.. Low Market penetration (2010, %)

North America Latin America & Caribbean

Europe Asia Oceania Africa including SA

SA World0

2

4

6

8

10

12

14

16

Life Non-lifeTotal

2010 contd.. Low Density (2010, %)

North America Latin America & Caribbean

Europe Asia Oceania Africa including SA

SA World0

500

1000

1500

2000

2500

3000

3500

4000

Life Non-lifeTotal

Africa highlights Recent progress Long term opportunities Nine sub-Saharan nations among 15 to grow fastest up

to 2015 (Ghana, Tanzania, Zambia, Mozambique, Angola, Liberia, Niger, Rwanda, Sierra Leone). ….forecast by IMF

By 2020, half of African household to have income above subsistence level, as per Mckinsey

Economies to go beyond ores and oil. E.g. Agriculture (Ethiopia), Telecommunication (Kenya)

Insurance industry growing at a faster pace than the economy in the recent past

Uncertainty remains a major concern.. on-going issues with legal security, political and economic stability as well as sustainable profitability

Comparison with Macroeconomic indicators(Rate of Growth between 2005 and 2011)

Positives seen in the last decade liberalization of world trade, increasing efficiency,

advances in Information Technology and the integration of world financial system

unprecedented positive impact on global growth and development of insurance

Unparalleled economic, cultural, and recreational opportunities.

New opportunities for insurance business in Africa; as the African market is now open for global exploration and competition.

Regulations have created a fairer playing-field for institutions to reach their growth targets..Recent survey by Pricewaterhouse Coopers Inc, concluded from responses of the 27 Companies surveyed

Challenges economic consequences of the Global Crisis for the

Insurance Industry especially in Africa new challenges for insurance regulation Insurance regulation in Africa is largely compliance

based ‘one cap fits all’ approach predominates. same set of rules applied to all No cognizance for the risk profile This model is costly in terms of:

finance, manpower and time

Added to the cost element is the loss of required effectiveness.

Challenges contd.. Capital inadequacy resulting in low retentions

and high demand for reinsurance. Globalization & Competition from foreign

companies Basic insurance and reinsurance products on

offer. Lack of customized insurance solutions to suit

local requirements. Weak and unsophisticated supervision

(environment for unethical practices to thrive) Many African Countries have weak economies

with resultant low Insurance penetration due to lack of disposable income, ignorance and inertia

Some countries are beginning to embrace recapitalization, Mergers and Acquisitions (e.g Ghana, Nigeria, Gambia, Kenya to name a few)

Development and scope of Micro-insurance in Africa(Findings of a study conducted in 2009 by the International Labour Organization’s (ILO’s) Microinsurance Innovation Facility and the Microinsurance Centre) Definition “an insurance product accessible either by price or delivery

channel to people earning less than approximately USD 2 per day”

In 2005, just over 0.3%, or 3.5 million low-income people in Africa were accessing microinsurance in eighteen countries out of forty-one that were considered for the study (South Africa was not included in the study).

14.7 million people, or about 2.6% of the population living under USD 2 per day, in 32 countries covered by microinsurance products

South Africa alone, represents 8.2 million, or almost 56% of the total

Of the 14.7 M, 10.3 M are covered by products other than credit life

The total microinsurance premiums received in 2008 amount to about USD 257 million, out of which 88% was collected by regulated insurers.

(Number covered in thousands, 2009)

Observations Africa remains dominated by life insurance products

as seen in Figure above. Of the potential markets, credit life covers close to

9.5%, and other life products cover about 3.2%. Health products, those which are often cited as the

most in need, only cover about 0.3% of the low-income population,

property and agriculture only about 0.2% and 0.1% respectively of the potential markets.

there is still great potential for microinsurance expansion and growth in Africa

Range of available products in some countries, such as Kenya, Namibia, Senegal and Cameroon, while others are dominated by few specific product lines

 

Observations contd. Microinsurance has been available to some

low-income people in Africa for a number of years in various forms

Cooperative Insurers have serviced a market that spans the income ranges since the 1970s.

In the 1980s, community-based health insurance schemes, especially in West Africa,

In the mid-1990s, commercial insurers began to enter the market offering specialized microinsurance products.

Over the last ten years insurance has developed into a widely recognized financial intervention to help Africa’s low-income populations to manage their financial risks

Observations contd. Except for North Africa, the regions are more similar in

their offering of health microinsurance North Africa looks specifically at the non-life products. The strength in health in Senegal, Benin, Mali, Cameroon

and Guinea is directly related to health mutuals Kenya and Uganda it is driven by a mix of community-

based schemes and commercial providers Southern and Eastern Africa dominate the

microinsurance landscape with 8.8 million and 4 million lives covered

This leaves only 1.9 million covered in Central, North, and West Africa.

This can be explained partly due to the strength of life microinsurance in South Africa, as well as the engagement of commercial insurers in microinsurance in the East and South

Microinsurance is on the rise A comparison with 2005 indicates that the number of

lives covered almost doubled in three years. The growth seems to be more substantial in recent

years. Half of the schemes were growing at a rate higher than

30% per year “Insurers” are defined here as institutions that manage

insurance risk. These include: Regulated insurers include commercial insurers and

cooperative or mutual insurance companies, regulated by the insurance regulations

Health mutuals and community-based microinsurance programs

Microfinance institutions (MFIs), non-governmental organizations (NGOs), hospitals and others that manage their own unregulated insurance programs

Share of various Risk Carriers…In Millions, year 2009

Observations Regulated insurers dominate the life landscape 1.5 million receiving credit life insurance primarily from their

MFI Health mutuals focusing entirely on health care financing 1.2 million covered by health mutuals, and 0.8 million covered

by regulated insurers and other risk carriers. It is important to support the development of various models

to expand microinsurance across the low-income market Some institutional types may be better at focusing on poorer

target groups while others might be more effective in the slightly less poor markets

African micro-insurers offer a wide variety of microinsurance products.

Though life insurance is clearly predominant, efforts to provide other products are an important response to market demands

Other insurers can learn from this This will greater variety of mass sales of these other products

Observation contd Total of 9.1 million people had life cover Of these, Funeral and personal accident insurance

cover about 6.2 million High funeral cover numbers are related to cultural

issues in South Africa. This shows that cultural factors play an important

role in microinsurance market development. Swiss Re (Sigma3 2009) reports South Africa as

having the third highest life insurance penetration in the world.

Term life policies (4.8 million) are popularly offered in many African countries.

Endowment policies (0.8 million) are comparatively lesser

Observation contd. Credit life insurance, is commonly a required

purchase with microcredit and other borrowing. It touches the most people in Africa – 7 million – Easy to require borrowers to purchase it It can be very profitable, especially since

borrowers are often not aware that they have purchased insurance with their loan

At least 25% of those covered by credit life enjoy an add-on that accrue to their surviving family.

Health products cover at least 1.9 million people 1.3 million enjoy comprehensive Health

packages, mostly delivered by health mutuals or specialized commercial players.

Agriculture Insurance and Business Property Less than 80,000 covered between livestock, crop

and various agriculture related index products. This shows there is need to find better tools for

farmers. Recent developments in index microinsurance

products offer the potential of a major breakthrough for agriculture.

These products are still being tested and generally have limited acceptance

Less than 0.3 million access non-agriculture related property insurance.

Business property cover stands out in this group, but still with only 140,000 policyholders.

The way forward…

If microinsurance is to prove effective as a risk management strategy for low-income households in Africa, risk carriers will need to better reflect the demands of the market in their product offerings, while still ensuring viability.

THANK YOU