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How to achieve penetration remains challenge of African insurers in 2022

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How to deepen penetration in the African insurance market remains the major worry of players and regulators in the industry, even going into the 2022 business year.

Every report including that of Mckinsey and Company published in 2020 ‘Africa’s Insurance Market is set for take-off’ pints to the same direction that penetration is key in growing the continents market.

Tope Smart, president of the African Insurance Organisation says his major focus for the continent which falls this year 2022 is to seek ways that will help the industry deepen penetration.

According to him, besides taking advantage of the African Continental Free Trade Agreement (AfCTFA) efforts must be increased to take insurance to the larger population of Africans.

With huge potentials in terms of population, demography favouring the middle class, rich natural resources, every eye is on the continent to develop its insurance potential for a robust economic growth, experts said.

According to the Mckinsey report most of the growth has come from economic expansion of these countries and region, not because of increased penetration, pointing to opportunity for the players.

Africa’s insurance industry is valued at about $68 billion in terms of gross written premium (GWP) and is the eighth largest in the world—although this is not equally distributed across the continent.

Markets are inconsistent in terms of size, mix, growth, and degree of consolidation, with 91 percent of premiums concentrated in just ten countries.

South Africa, the largest and most established insurance market, accounts for 70 percent of total premiums. Outside of South Africa, we see six primary insurance regions in Africa. In the Southern Africa region, 54 percent of premiums are for life insurance. Nonlife insurance, however, plays a larger role in anglophone West Africa, North Africa, East Africa, and even more so in francophone Africa.

The level of maturity in these six regions is low, relative to global reference countries, as measured by insurance density (premium per capita).

Read also: African Insurers meet in Rwanda, deepen discussion on AfCFTA

While most African countries have experienced double-digit insurance growth in CAGR in local currency over the last five years, this has mostly been driven by economic growth, rather than deepening market penetration.

Levels of insurance penetration in Africa are half the world average measured as a percentage of GDP, and premiums per capita are 11-fold lower than the world average.

The bulk of the growth in Africa is likely to come from pensions and individual life insurance, which is the fastest growth line of business on the continent, although starting from a smaller base compared to nonlife insurance.

While motor insurance is the largest contributor to nonlife insurance, driven by requirements for a compulsory minimum level of insurance, often third-party liability in countries like Morocco, Kenya, Nigeria, and Egypt, accident insurance, health insurance, and property insurance have all shown faster growth in recent years.

The prospects for growth in commercial lines are also good.

In Nigeria, for example, commercial insurance has performed strongly, with oil and gas growing at 9 percent per annum and marine and aviation at 10 percent per annum between 2014 and 2018.

In 2018, oil and gas insurance and marine and aviation insurance accounted for 34 percent and 11 percent, respectively, of nonlife gross premiums in that country.

In Ghana, the Ghana Oil and Gas Insurance Pool (GOGIP) almost doubled from $25 million in 2016 to $48 million in 2019 and represents approximately 15 percent of total nonlife premiums in that country.

Across the continent, distribution channels also vary by region as well as between life and nonlife products.

Brokers and agents remain the most prominent channels, although direct sales and bancassurance have increased their share.

For example, in the Ghanaian life-insurance market, the bancassurance share of premiums has almost doubled from 7 percent in 2015 to 13 percent in 2019.