Africa needs to close insurance gap
Allianz Global Corporate & Specialty’s (AGCS) CEO in Africa, Delphine Maïdou, spoke of how Sub-Saharan Africa can pursue economic growth and bring opportunities for the insurance industry at a Risk Management Conference in London on 25 February 2016
Allianz Global Corporate & Specialty’s (AGCS) CEO in Africa, Delphine Maïdou, spoke of how Sub-Saharan Africa can pursue economic growth and bring opportunities for the insurance industry at a Risk Management Conference in London on 25 February 2016
“With growing economies, Sub-Saharan Africa presents a huge potential for business insurance,” she said. “Insurers and brokers need to work very closely with risk managers, regulators and stakeholders within the region to create awareness about the purpose and value of insurance, so more companies, projects and stakeholders can be adequately protected.”
The most recent figures available show an insurance penetration rate of just 3.65 per cent in Africa, significantly below the global average of 6.5 per cent (although above the average for emerging markets, which is 2.65 per cent).
Ludovic Subran, chief economist at trade-related credit insurance provider Euler Hermes, said: “2015 was a very tough year for emerging markets and some countries will remain highly vulnerable to economic shocks and market volatility in 2016. Sub-Saharan African countries will continue to face a trio of challenges: low commodity prices, the Chinese slowdown, and the tightening of US monetary policy. These countries also suffer from their own internal pressures such as inflation, weak domestic demand and socio-political tension.”
Despite these issues, Sub-Saharan Africa’s economy is expected to grow by four per cent this year, and the region is the fastest growing market for insurance after Asia (International Monetary Fund (IMF) forecasts suggest that the region will see insurance premium growth of between 4.5 and five per cent in the period 2016-2017) but Maïdou cautioned that the insurance industry needs to ensure that it keeps pace with investment and economic development. “Sub-Saharan Africa’s continued growth depends on closing its vast infrastructure and skills gap,” she explained, “which needs innovative credit and investment solutions facilitated by public private partnerships through a clear policy and legal framework. But for these solutions to work, they will require equally appropriate risk management and risk transfer solutions – which essentially means increasing insurance penetration.”
Local and global brokers and insurers focusing on countries with high insurance penetration – such as South Africa and Mauritius – should work with their counterparts in African countries with lower penetration to foster the uptake and promotion of modern insurance and risk management practices, AGCS’s CEO said. Nigeria, she said, is a good example – it is Africa’s largest country by GDP, but has an insurance penetration rate of just 0.6 per cent: “Innovative and agile insurance solutions can help businesses in Nigeria and the rest of Sub-Saharan Africa. There are numerous ways to close the protection gap to mitigate business risks such as business interruption, fire and explosion, and political risks to name a few. Both traditional insurance and the new generation of alternative risk transfer solutions can be used to find the right responses to an increasingly complex risk environment.”
“In essence,” Maïdou concluded, “this involves educating businesses about these risks and advising them on relevant risk management and insurance solutions, while also ensuring such solutions are accessible in local markets. It is also critical for all players within the industry to do their homework about the regulatory and legal aspects of insurance within each country so they devise relevant and fully compliant solutions.”