Insurance industry in Africa believes that integration of regulatory system in the continent will pave way for optimization of the expected benefit of African Continental Free Trade Area (AfCFTA).
The AfCFTA will create a single market covering more than 1.2 billion people, with a current gross domestic product of more than $ 2.5 trillion.
“The free flow of goods, services, people and capital under the AfCFTA is expected to boost intra-African trade and strengthen the competitiveness of African companies, with insurance as major driver, according Africa Insurance Pulse 1/2021 released during the recently concluded African Insurance Organisation hosted by Nigeria.
Pulse report, being market research and in-depth interviews with nearly 30 insurers, reinsurers, intermediaries, regulators and policymakers operating in Africa conducted by Faber Consulting on behalf of the AIO says that the African insurance sector is optimistic about the AfCFTA but wishes to see The African insurance sector is ideally positioned to provide security, economic and financial stability and enable the development of societies and economies in Africa through its risk knowledge and risk transfer solutions. However, to play this important role, African insurers need integration or even harmonisation of insurance regulations, says Jean Baptiste Ntukamazina, secretary general of AIO.
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Ntukamazina said the AfCFTA has significant potential to serve as a catalyst for transforming the African economy, and for the AfCFTA to succeed, dynamic pan-African trade is required, which only take can root in a stable socio-political environment.
The maturity of the insurance market is low in most African countries. Insurance penetration is expected to increase in African markets where insurance growth has been accompanied by structural reforms, such as market liberalisation, compulsory insurance enforcement, wider distribution, public-private partnerships, and a regulatory system promoting innovation and market access. The trend towards tighter capital requirements for insurance companies to ensure their solvency will establish stronger companies and promote job creation and build capacity in the industry. These reforms are crucial to increase the security and performance of the continent’s insurers
Regional expansion of re/insurance business lags behind its potential due to trade barriers
While intra-African trade agreements have gradually seen a substantial reduction in tariffs on goods, non-tariff barriers, such as infrastructure gaps, the low quality of trade logistics, access to credit, and human capital, remain high for most African countries. Despite these efforts, the intra-African trade remains below its potential. This is also true for the insurance sector, according to the executives interviewed. Most insurers operate in just one or two markets. Even Africa’s reinsurers, acting as a shock absorber for cedants and economies, are challenged to diversify their portfolio because of many barriers and constraints in African insurance markets. Ahead of the implementation of the AfCFTA, a geographic expansion to build scale is the top priority for insurers and reinsurers alike.
Corneille Karekezi, group managing director/ CEO, Africa Re, said trade restrictions within Africa are higher than those with the rest of the world. While intra-regional exports amount to roughly 50 percent of trade in Asia and 69 percent in Europe, in Africa only 17 percent of exports remain within the continent. Therefore, it comes as no surprise that large hopes rest on the AfCFTA. According to the UN Economic Commission for Africa (ECA), intra-African trade is expected to experience a boost of 52 percent, encouraging manufacturers and service providers, including re/insurers, to leverage economies of scale.”
