South Africa accounts for most of all insurance premiums in Africa, with much higher insurance penetration than its peers and even many advanced EMEA countries, according to FT Partners fintech industry research.
The report disclosed that South Africa had the highest insurance penetration by market share, at 12.2 percent, while advanced EMEA countries had 8 percent. Kenya had 2.2 percent, Egypt had 0.6 percent, and Nigeria had 0.4 percent.
The report read, “Outside of South Africa, insurance penetration rates are low in Africa due to lack of awareness, cost, minimal product innovation, regulatory obstacles, and unsteady incomes. Insurtech innovation plays a large factor in growing the continent’s insurance market by providing more affordable products that cater to currently untapped demographics.”
The report revealed that life insurance accounts for around 82 percent of South Africa’s insurance premiums, compared to 55 percent in Nigeria and 46 percent in Egypt and Kenya.
In the non-life insurance segment, motor, accident, property, and health insurance account for most of the premiums across African markets. According to McKinsey, Africa’s Insurance market is expected to grow at a 7 percent CAGR from 2020 to 2025, almost double North America’s expected growth rate and more than three times Europe’s expected growth rate over the same period.
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However, because many African consumers lack awareness of the insurance products available to them, most marketing campaigns target the upper class, where unit economics are better.
Similarly, it said African consumers largely scale back on discretionary expenditures, such as insurance premiums, during economic instability.
“Insurance business models do not easily scale to other African countries because of regulatory and policy differences, such as disparities in reserve requirements for insurance companies across the continent and the Road Accident Fund in South Africa that minimises the need for motor insurance,” the report disclosed.
A report by Stitch disclosed that South Africa is a leader on the continent when it comes to insurance, with the largest and most established insurance market.
Over ZAR 12.3 billion is spent on insurance premium payments monthly in South Africa. About 60 percent of South Africans report having some sort of insurance, according to the 2022 Financial Sector Conduct Authority (FSCA) Financial Sector Outlook Study.
The Stitch report said that life and non-life insurance penetration (in terms of premiums as a percentage of GDP) was just over 12 percent in 2021 – more than 5 percent above the global average.
As of 2022, 15.8 percent of South Africans, or about 9.7 million residents, were members of private medical aid schemes. However, according to the FCSA study, only 10 percent of South African consumers have life insurance once funeral insurance is excluded. Non-life and health insurance policies, while growing in popularity, represent a smaller subset.
They said the reasons for lower adoption rates range widely—from the difficult economic climate and declining disposable income to misconceptions around the reason for and purpose of insurance policies, challenges during the application, purchase, and payment processes, and hurdles in receiving payouts in times of crisis.
One major hurdle is that traditional insurance has remained relatively unchanged over the last 50+ years.
The report added, “Younger, tech-native generations struggle with the rigidity and complexity and may fail to see the value of insurance as much as their peers.
“However, some South African insurance companies are attempting to tackle the insurance gap with innovative and simplified solutions, demonstrating a real understanding of the changing market and their needs.”
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