Insurance for companies moving into Africa – an essential precaution
Establishing or expanding a business in a new market environment carries with it opportunities and risks which naturally require mitigation measures, including insurance for companies. Business insurance is an irreplaceable cornerstone component of risk mitigation strategies, but the manner of its selection and application – the scale and scope of insurance taken – is nonetheless an area where shrewd decision making can be beneficial to the savvy business leader or entrepreneur.
The African market offers significant investment and entrepreneurial opportunities. African economies continue to experience significant growth, which local governments hope to sustain, particularly through attracting foreign direct investment. In seeking to entice foreign investment, African regulatory frameworks relating to governance and finance are being enhanced, and substantial effort is being expended on improving logistical frameworks to further support business development.
As such, there are many good reasons for companies to establish presences in Africa. Risks associated with developing economies, which might be argued to be more severe than in developed countries, are however, a significant concern.
Insurance in Africa is much the same as elsewhere in the world
Establishing and operating a business in an African country, as with operating anywhere else in the world, carries with it certain risks. These risks can directly or indirectly threaten your business: a fire in your main office; or a customer hurt while on the premises (who then sues the company). Generally, there are four main areas of insurance applicable to businesses:
- Vehicle Insurance
- Personnel Insurance
- Public Liability Insurance
- Building and Content insurance
However, the particulars of these areas of insurance may differ from country to country. In addition, cross-border operations carry an aided layer of complexity. A company that has established a foothold in South Africa, including insurance coverage in that country, may seek to expand into neighbouring Mozambique – but must then account for any overlap or lack thereof with regards to insurance coverage.
Expanding into the African market
Finding a balance between sufficient insurance and performance-limiting over-insurance is difficult, not least of all in a foreign country, and faced with differing legal requirements and obligations. As such, it is worth consulting with experts from that region. A good starting place is the African Insurance Organisation (AIO), a non-governmental organisation formed in 1972 and recognised by many African governments.
The AIO is located in Cameroon and its membership comprises representatives of:
- The Insurance Industry
- Regulatory/Supervisory authorities
- Insurance Training Centres
- National and Regional insurance associations
Furthermore, the AIO has established a number of bodies under its umbrella, notably:
- The African Aviation Pool
- The African Oil and Energy Insurance Pool
- The AIO Life Committee
- The Association of African Insurance Supervisory Authorities
- The Association of African Insurance Brokers
- The Association of African Insurance Educators and Trainers
- The African Centre for Catastrophe Risks
As such, the AIO is well positioned as an authoritative source for guidance and awareness of the African insurance norms and trends.
Business insurance for risk mitigation
Further guidance for companies considering exploring opportunities in African countries can be found at the annual African Insurance and Reinsurance Conference. The 2014 Africa Insurance & Reinsurance Conference, to be held on 10-11 June 2014 in Nairobi, Kenya, will provide prospective entrepreneurs and business leaders the opportunity to familiarise themselves with the latest industry developments, marketing strategies and product innovations relevant for the African market.
Intelligent decisions about insurance will serve companies moving into Africa well. Alvin Dye, the divisional executive of Marsh Africa’s construction division, notes in a blog post on the subject, that one of the biggest challenges facing multinationals moving into Africa relates to incorrectly structured insurance programmes. Dye argues that that failure can lead to breaches in insurance regulations, which in turn invites significant penalties and difficulties for the company in question.
This observation highlights the fundamental risk mitigation aspect of insurance for companies. Companies new to the African operating environment may lack the knowledge and familiarity with local regulations in particular, which could lead to improperly structure insurance programmes. That could mean costly over-insurance, or perhaps more dangerously, insufficient or incorrectly focussed insurance.
Exploring opportunities in African countries
Structuring insurance packages tailored to the vagaries of local markets requires applied in-depth market knowledge, and especially, local experience. The African regulatory landscape is particularly noteworthy for the variances in rules and regulations between countries – a general lack of streamlining which organisations like the AIO seek to remedy.
For the time being however, companies seeking to move into African countries should be cautious in the structuring of insurance programmes, and especially mindful of the need for good ‘on the ground’ knowledge of the requirements for that insurance.
For more information, see: Alvin Dye., ‘Correctly structured insurance is vital for companies moving into Africa’, How we made it in Africa, 28 November 2013. Available at: http://www.howwemadeitinafrica.com/correctly-structured-insurance-is-vital-for-companies-moving-into-africa/32922/