A lack of both financial and technical capacity continues to hinder the development of Africa’s insurance markets and threatens to derail the continent from achieving its capabilities, warned a group of insurers and reinsurers CEO recently.
Speaking at a roundtable, hosted by Afro Asian Insurance Services, the CEOs agreed that it remains a challenge to develop the African markets and, facing economic downturns, it is unlikely to be resolved quickly.
Lamia Ben Mahmoud, chairman and CEO of Tunis Re, admitted the market “has a problem of competency, skills, experience and also of finance”. That said, she stressed that insurance is playing a valuable role in supporting economies and enabling transformation.
Ms Ben Mahmoud said, however, that local markets including reinsurers still rely on international markets for support. “The shame of that,” she added, “is that it means money leaving the local economy. It also means it is more difficult to build capacity and skills on the continent.
“There are some risks which are simply too huge for us to manage so we will always need those international markets, but better retention on the continent would help our economies.”
She suggested that the African insurance market should work together through pool arrangements to help build local capacity.
But she pointed to another issue which is that there is a massive disparity across Africa: there is some US$65m of premium written across the continent, but more than 80% of that comes from the South African market. “And about 80% of the rest is split between Nigeria, Egypt and Morocco,” she said.
Patty Karuaihe-Martin, managing director of Namib Re, agreed that those figures skew the scale of the problem. “If you look at penetration rates, we have around 10% in Namibia and 15% in South Africa, much higher than anywhere else on the continent. The way we do business is totally different, as a result.”
Her words were echoed by Ntwala Mwilima, company secretary at Namib Re, who believes that a strong regulatory framework is the key to the success of the South African market.
Not only is there a tough regulatory regime but enforcement is strong and there is ultimately a solid judiciary to back it up.
“Added to that, there is a strong economic pull in favour of insurance. If you want to buy a house or a car, you have to have insurance. We don’t have a cash economy and so if you want to borrow money from the banks, you also need insurance.
“That contrasts with other African countries where, if you want to buy a house, you have to have cash and there is no access to mortgages.”
The strength of the institutions is the differentiator, according to Farad Kajee, CEO of Yard Insurance, who said it gave investors confidence to do business and where consumers can have confidence in the system to trust insurance as a financial mechanism.
However, Udai Patel, chairman of Afro Asian Insurance Services, suggested that presented an opportunity for insurers in other countries. “Surely if you have worked half your life to afford the cash to buy a house, then you should want to protect that with insurance,” he asked.
It is not a question of insurers doing more in terms of awareness, said Musa Bako, managing director of FBC Insurance in Zimbabwe, who feels that insurance can only follow the economic fortunes of a country.
So much of the continent’s population struggles in the lower or informal class, agreed Joseph Kusi-Tieku, CEO at GN Re, citing the 60% of the Ghanian population who make up the informal sector.
He believes that the insurance sector does a good job in targeting the growing middle class but must do more with that informal sector if it is to make real headway across Africa. “The concept of insurance is alien to these people, who are often subsistence farmers,” he said.
Naji Eid, general manager and CEO at Blue Cross Insurance, added that a Deloitte report showed the perception of insurance remains a massive problem for the sector, with many across Africa considering insurance a low priority, even if affordable, because of the cultural barriers to going outside the family for help.
Mr Kajee again pointed to building up trust among consumers. “It is the little things that matter,” he said. “Consumer complaints have to be seen to be handled. There needs to be an Ombudsman to call on. It is also the sheer size of the economy in South Africa that helped – the economy was simply big enough to get the insurance industry going.
“Nothing exists in isolation and lots of things have to come together to build a fully functioning market.”
Ms Ben Mahmoud urged insurers and reinsurers to become more innovate if they wanted to tap into Africa’s potential markets. There has to be better product development, she suggested but it would also need the support of strong regulators to help drive change through the markets and also to allow for greater innovation.
For starters, she suggested, regulators should adopt more technology and allow insurers greater use of technology in product development.
Lawrence Nazare, group CEO at Continental Re, brought the conversation back to earth, pointing out that the need for capital will never be satisfied unless investors are confident of making sufficient returns.
“The critical thing is that the insurance industry is viable enough to attract capital,” he stressed. “In the past 10 years, the global markets have been awash with an excess of capital and at a global level reinsurers can attract capital. When we started our business, we were highly capitalised and our private equity investors were expecting a 30% return.
“For a US investor to put capital into an African business, they will be looking for that sort of return to make it viable. Insurance is a game of numbers if you are looking to attract that capital.”
He feared that the African insurance markets are unbalanced, making them less rather than more attractive: “too much of our business is fire insurance” he said by way of example.
It would be almost impossible to deliver a more diverse book of business, make high enough margins and deliver on the returns demanded by foreign capital, he said.
The group agreed that without the strong institutions, a growing middle class and strengthening economies, then it will be harder to make the case to investors. Mr Nazare added, however, that there are opportunities – Kenya, for example, has all three of those conditions and is ripe for development.
Another challenge for the market, said Mr Patel, is that ownership of African insurance entities is often opaque and that the regulators rarely dive deep into ownerships. Added to that, he wondered: “How can you paint a lovely picture [about the sector] if you don’t ask the right questions about paying claims or about the collection of premiums. Claims won’t be paid if premiums aren’t paid, it is a never-ending circle.
“I am not naming names but there are entities out there which purport to be insurers and reinsurers and there has not been any questioning on that.”
Mr Bako agreed that regulators need to take a closer look at claims paying – without that, he said, there would never be trust in insurance. Education is also critical, they agreed, for consumers but also for the insurance market itself. Back to the original point made by Ms Ben Mahmoud that there is insufficient technical capacity in the market.
As far as educating consumers goes, Vinita Lotlikar, executive director, said that one innovation, outside of Africa, had been to insist that all companies contributed to a fund that was then used to “sell” the concept of insurance to the population. It worked very well in the first year, she said, and increased penetration rates.
Former Ivory Coast insurance regulator, Karim Diarassouba, managing director of Ciga Re, said that, when he was the regulator, they became aware that the market was very small. “The population never understood the importance of insurance,” he said, “if they were aware of it at all. There was also a religious aspect to this because they often put their trust in God.”
So, the regulator divided the market into different groups and spent time sensitising the various sectors.
One thing that emerged, he said, was that consumers who had bought insurance had been let down. As a regulator he was in a position to put pressure on insurers o make sure valid claims were paid properly. “Since then, they have been taking more care of the consumers,” Mr Diassouba said.
As a result, the Ivory Coast market has grown into the largest insurance market within the CIMA region, he said. However, challenges still remain and there is still a lot of fronting, he warned.
Hashit Patel, managing director of Mayfair Insurance in Zambia, blames some of the problem on the low regulatory bar for the creation of insurers. “The required capital is US$1.5m and so there are new insurers coming into the market, but we don’t know where their capital is coming from.”
The insurance sector in Zambia, he said, has been lobbying ministers but he admitted the government tends to listen to the banks rather than insurers and their concerns are not truly being heard. Local investment too heads towards the banks rather than to insurers, he said, lured by the promise of better returns.
Having said that, Mayfair’s Mr Patel fully believes it will be an exciting time for the insurance market locally with plenty of new entrants and he is predicting a healthy future for the next 20 to 30 years as these companies develop and grow.
“There is a long-term issue for insurers and reinsurers to face. Reinsurers locally complain they do not make money but much of that is because of the quality of the risks being underwritten. We need to do more in the way of sensitising the local population and encouraging better take-up of insurance,” he concluded.
Like many of the others in the group, Solomon Twum Barima, chief operations officer of Accra-based GLICO General Insurance, worries that some insurers are effectively brokers because they retain so little of the risk. That, he said, means they have less concern about the quality of the risks that they underwrite and are happy to pass lower quality business straight onto the reinsurer.
The end result is that reinsurers are unhappy about settling claims and the whole process slows up, leaving the sector in the cycle of trust being eroded and losing business as a result.
Like the others, he believes much depends on the regulators but stresses “If we are seen to be giving value, they won’t use our services.”
Added to all the internal issues, Ryan Philips, managing director at Afro Asian Insurance Services, worries about a growing disconnect between African and international markets. “I understand that many of the losses impacting the international market are not coming from Africa. But the consequences for us all is that rates are rising internationally.
“It is very hard to explain that on a local level in Africa. But it is hitting the market now and if prices are going up, how can we expect to drive penetration rates up?” he asked.
African reinsurers have struggled to make money in the past five years, stressed Mr Nazare, saying that there is a real urgency to encourage reinsurers to work together to force prices up in local markets to sustainable levels.
“Brokers are demanding insurers and reinsurers drop their prices and the market accedes to their demands because they want the business. Reinsurers work on volume and so accept the business. But the market is not making money in Nigeria, it is not making money in the CIMA region nor is it working in north Africa. It cannot continue.”
Other challenges facing the market include the introduction of IFRS17 which threatens to reveal a far worse situation, suggested Mr Nazare. However, Afro Asian’s Mr Patel suggested there is hope in the form of the African free trade deal which stands to open borders and encourage intra-African trade, which will require insurance.
Ms Karuaihe-Martin said the continent may benefit from that, but it is also facing a fundamental challenge in terms of climate change.
Set to be one of the worst-affected regions of the world, she said insurers and reinsurers must step up and provide products for a changing environment. It was a real opportunity for local markets to develop. But she warned that the global players may well also taken advantage of the opportunities.
“Is that what we want as Africans? This is a conversation that we need to be having,” she said. “Do we want to create more pools? It brings us right back to the sustainability conversation.” Ms Karuaihe-Martin urged insurers and reinsurers to sign up the Nairobi Declaration on Sustainable Insurance and to have a united African insurance voice at the upcoming COP27 in Egypt this November.
Overall, the group agreed, there is an urgent need to ensure they are developing fit-for-purpose products and to speak to their clients in terms of relevancy to ensure that the reinsurance and insurance markets in Africa have a sustainable future.
COMMENTS