Insurance Market in Africa: Where is the boom?

Insurance facilitates investment by reducing the amount of capital that businesses and individuals need to keep at hand to protect themselves from uncertain events. Despite its importance for economic development, the majority of African countries lack access to insurance products. Access to insurance only starts to increase quickly in the upper middle income brackets, but with most Africans still just struggling to meet their basic food and other day-to-day needs, insurance is still a long way off. Apart from low income levels, other reasons for low insurance penetration in Africa are:

  • Low awareness and understanding of insurance across various population segments;
  • People do not trust financial service providers;
  • Given the low income levels and how challenging the business environments are, there are not enough incentives for multinational companies to enter African markets and develop the sector;
  • There is a lack of reliable information, making it very difficult to assess people’s risk;
  • The legal and judicial systems are poor;
  • There is a lack of human capital and expertise;
  • Shallow financial markets make it difficult to raise enough money to capitalise insurance/re-insurance companies; and
  • Communities often make use of informal forms of insurance rather than using the services of formal insurers.

Albeit, this is gradually changing. As we show in this report, the growth in the volume of insurance premiums in Africa has been among the highest in the world over the past few years. An increasing number of foreign insurance companies are also entering Africa’s underserved insurance markets. It is especially noticeable that African companies are among the most active investors across the continent. In this report, we will explore which countries’ companies are the most active in other African countries.

Africa in a Global Context

According to Swiss Re, the total value of Africa’s insurance premiums was just shy of US$70bn in 2013, down 2% from the US$71.35bn in 2012. This means that Africa’s share in the global market was 1.5%. The poor performance of Africa on a global stage is particularly noticeable if South Africa is excluded. South Africa accounted for nearly 74% (US$51.6bn) of all African insurance premiums in 2013, with the other 53 countries contributing only US$18.3bn, which is only 0.4% of the global insurance market. South Africa is particularly dominant in terms of life insurance, accounting for 88.6% of the continent’s life insurance premiums in 2013. South Africa has a sophisticated and well-developed life insurance industry; however, the rest of the continent remains a long way behind (see below for further discussion). Life insurance dominated the global insurance market, accounting for 55.3% of all insurance premiums. In South Africa, life insurance is even more dominant, accounting for 81% of all insurance premiums. Outside of South Africa, however, life insurance is a small player on the continent, accounting for only 29.5% of total insurance premiums. Life insurance premiums in the rest of Africa totalled a mere US$5.4bn in 2013 (0.2% of the global market).

Insurance Premiums by Countries

Insurance Premiums by Countries

Drivers of African Insurance Growth

Despite the fact that the value of insurance premiums in South Africa grew by only 2% p.a. in 2010-13, the country was still the main contributor to Africa’s insurance sector growth. Due to its large share in the African market, South Africa still contributed 1.54 percentage points to Africa’s total insurance sector growth over this period. Astonishingly, the increase in South Africa’s insurance premiums over this three-year period was roughly equivalent to the entire size of Africa’s second-biggest insurance market, Morocco. Specifically, South Africa’s insurance market increased by US$3bn over the 2010-13 period. As shown in the table, this is roughly the size of the Moroccan market, and much higher than countries like Egypt and Nigeria, both of which have much larger populations than South Africa. Apart from South Africa, the other main contributors to African insurance growth were Morocco, Kenya, and Algeria, while Nigeria and Angola also contributed notably. Although Mauritius had one of the fastest-growing insurance sectors, the fact that it is a comparatively small market meant that it contributed slightly less than 0.1 percentage point to Africa’s total insurance sector growth. In the following section, we will analyse these growth drivers more closely.

Please download the full version of our sector report, Insurance in Africa

David Okwara

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