The African insurance market has emerged from two years of pandemic at a bit of a crossroads, with many of the continent’s major insurance and reinsurance brands uncertain about growth prospects and struggling to figure out which segment of the market will outperform over the next three to five years. Midway through 2022 it has become clear that the pre-pandemic prediction of 7% compound annual growth rate for the Africa region between 2020 and 2025 has been rendered moot by Covid-19.
“According to a 2020 McKinsey report on Africa’s insurance market, the market was expected to grow at compound annual growth rates of 7% per annum between 2020 and 2025, nearly twice as fast as North America, over three times that of Europe, and better than Asia’s 6%,” writes Dr Nolwandle Mgoqi, chief executive of Standard Insurance Limited and head of insurance for Standard Bank South Africa. “Granted, this growth was forecast from a low base in Africa, the most underserviced region in the world, with KPMG reporting insurance penetration in Southern Africa at just 2.2%; 1.2% in Francophone Africa; 1.3% in North Africa; 1.2% in East Africa and 0.6% in Angola”.
In Staying adaptable and driving client resilience: A key to thriving in the face of change, Dr Mgoqi singled out the digitalisation of the insurance industry, ensuring client resilience during tough economic times and insuring the uninsured as focus areas that would give both life and non-life insurers an edge in the coming years. It turns out that the digitalisation of the insurance industry is critical in tackling issues such as access to insurance and insurance penetration across the continent. More importantly, the interplay between digitalisation, client resilience and improved access to appropriate insurance solutions will be key drivers of premium growth and insurer sustainability.
There is no better explanation of this interplay than the following paragraphs, shared with minor alternations from Dr Mgoqi’s insightful piece:
Insuring the uninsured
South Africa boasts a highly competitive insurance sector with a combined life and non-life insurance penetration of 12.4% of GDP, meaning that premium growth can be driven by more than just initial policy uptake [through a focus on] value-added services, benefits and even rewards. One can also argue that a market like South Africa should be focusing aggressively on retention of both commercial and consumer clients. However, I must warn against the thinking that South Africa has reached or is nearing market saturation. Truth is, there is still a huge portion of South Africans who are uninsured and I do not believe that traditional insurance product models offer the kind of value that these consumers seek.
A recent Finscope survey revealed a 4% drop in the uptake of insurance in the country, mainly driven by a decline in insurance from banks and burial societies. There are also concerns over the makeup of customers’ insurance portfolios. For example, a high proportion of the population, 17.7 million or 42% of adults, have taken out funeral cover. Another deeply concerning statistic is that only 8.2 million people have non-life insurance cover, a drop from 8.6 million in 2019, despite there being more than 800 000 motor vehicle accidents that occur annually across the country. Sadly, many of the vehicles involved in these accidents are not insured. According to the short-term insurance industry in South Africa 2022 report, vehicles are generally not insured due to affordability and people believing they will never be involved in an accident.
It is my belief that insured clients are looking for true differentiation and flexibility. For instance, a policy that reflects a motor vehicle’s depreciation is a relatively new phenomenon, but common sense dictates this should have always been available to consumers. As such, insurers are now working hard to offer innovative and flexible policies that reflect usage, lifestyle and individual risk profiles. The result is a fairer product backed up by more accessible consumer education. As insurers find more relevant and attractive value propositions, the South African market could see a rapid growth over the coming years, narrowing the gap of the 24.4 million without life insurance, and increasing the uptake of asset cover for homes, household contents and motor vehicles too.
Driving client resilience in tough economic times
Households adjusted to the financial hardship introduced during pandemic by cancelling subscriptions and downgrading to lower-priced brands and products. The resilience of insurance underwriters will thus depend on their ability to adapt and provide value in a flexible manner, especially as fundamental changes in lifestyle are realised. For example, one study found that 20% of workers worked from home prior to the Covid-19 outbreak. By the end of 2020, at the height of the pandemic and widespread lockdowns, a staggering 70% were working from home. About 54%, having realised the benefits of telecommuting, have expressed their desire to continue working from home.
Many companies now offer flexible work options, while some have made working from home a permanent feature of working conditions. This has huge implications for insurers. For one thing, people are spending less time on the roads, thus drastically reducing their own risk exposure daily. Furthermore, with fewer vehicles on the road, the collective risk should logically come down. The extent of the necessary adaptation will be determined by telematics data that will guide the industry on how to design solutions that meet consumer needs. Returning to normal for insurers is unlikely, and providers will have to seek new ways of navigating this new environment. The answer may lie in digitisation and the simplification of the client experience.
The digitalisation of the insurance industry
South Africa, having a historically low fixed line penetration, has seen its mobile phone penetration rise rapidly, with over 78% of South Africans of all backgrounds now owning (and being adept at using) smartphones. These powerful devices can help to simplify the customer’s insurance buying journey and take away some anxieties around the mystery of insurance. This means that digital insurance platforms can help insurers bring new products and services to the market faster. Insurers can also make better use of social platforms to reach clients and consumers.
Finally, in leveraging the power of artificial intelligence (AI) and big data analytics, the insurance industry is poised to become more proficient at predicting customer behaviour and enabling better retention and customer service. Recently, Standard Bank detailed its use of Microsoft’s Business Intelligence (BI) platform to harness data insights and predictive and prescriptive analytics through AI and machine learning. This allows the bank to better serve customers through more accurate targeting and service delivery.
We are on the cusp of a new era of insurance. While we cannot fully predict what the future will bring, we know that the top-down approach the industry has traditionally enjoyed is a thing of the past. Personalisation, flexibility, value-adding and more accurate pricing will guide the evolution of the industry, especially as we strive to onboard the more sceptical among our potential customers.
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