Insurable risks on the rise across Africa despite headwinds of low penetration

Insurable risks on the rise across Africa despite headwinds of low penetration

East Africa’s insurance market is poised for growth as economic progress presents new insurable risks that underwriters can seize to overcome the current low penetration levels.

The three major economies in east Africa – Kenya, Uganda and Tanzania – have experienced consistent growth in premium revenue and capital investments in both long-term and short-term insurance.

Rwanda, Burundi and South Sudan are also showing progress as insurable risks increase in line with economic growth.

But the six east Africa economies are among the sleeping giants on the continent, given that the growth in premiums has failed to keep up with the pace of insurable risks, and as such no impact on penetration has been seen.

Kenya, with a penetration level of 2.3% (premiums as a percentage of gross domestic product), comes top of east Africa, clearly showing the underperformance.

Rwanda follows with a 1.6% penetration level while Burundi, Uganda, Tanzania and South Sudan follow with 0.95%, 0.77%, 0.5% and 0.48%, according to the 2020 statistics.

The growing middle class across east Africa, fuelled by the younger population, means the target market for insurance products is expanding.

Governments in economies such as Kenya, Uganda and Tanzania have increased insurable opportunities by investing money in mega infrastructure projects such as roads and railways, as well as exploring plans such as drilling for oil and gas.

Climate change conversations are also being given preference, especially as floods, drought and other natural perils disrupt livelihoods, presenting challenges that insurers can transform into opportunities.

However, east African underwriters will have to put the right products in front of the right customers and package them in an appealing way, if they are to reap the dividends of these transformations happening in the region.

An enormous amount of work is underway to attract new customers, from micro insureds to more traditional consumers. This is particularly true in the agricultural sector, the engine of growth in many African countries.

Returns on shareholders’ equity have come under pressure as challenges such as fraud, price undercutting and the concentration of insurance products in a few cities and towns deny underwriters full potential.

The impact of Covid-19 has been cited by many underwriters, especially in Kenya, Uganda and Tanzania, as having increased claims, triggered insurance policy surrenders and clipped the growth momentum in terms of premiums.

Perennial issues

But as the east Africa economies join the global economy in turning the corner after the disruptions from Covid-19, perennial issues such as fraud and poor underwriting will still have to be addressed.

In particular, increased claims and losses due to fraud in motor and health businesses continue to threaten the sustainability of many insurers.

In Kenya, court rulings have appeared to complicate the matter for underwriters. The court for instance stopped insurers’ attempts from barring agents from handling premiums and also suspended premium hikes in motor covers.

In Uganda and Tanzania, consumers’ negative perception and mistrust of the insurance industry still stand in the way of growth.

Added to that, consumers are also under pressure to trim “unnecessary” expenses, especially with Covid-19 disruptions being worsened by the rising cost of living that has been triggered by Russia invading Ukraine.

Analysis, such as that by Deloitte, has previously warned that when household budgets come under pressure, underwriters are likely to struggle to retain clients or to win new business.

But the underwriters in the east African markets have an opportunity to build their image – something they will need to do if they are to convince people to see the relevance of insurance.

Customers able to tap into policy loans or seamlessly ride on education policies in the wake of rising cost of living and near stagnant earnings can, for instance, provide motivation to the uninsured to consider taking insurance.

However, insurers can only achieve this by avoiding delays in approval of policy loans or by paying claims promptly across the board, if the industry is to motivate more people to sign up.

Innovation needed

Insurers will also need to rethink their operating models, reimagine their workforce and bring innovative products to the market by embracing technology in their operations.

There have been encouraging signs, with several traditional insurers realising the urgent need to modernise and scale up their technological setup.

East Africa is fast emerging as one of the most vibrant fintech hubs on the continent, and the predominantly young population means insurers in economies such as Kenya, Uganda and Tanzania cannot afford to ignore technology. The tight budgets among many of the east Africa insurers mean partnerships among insurers and also with technology firms present a shorter route to growing penetration levels.

Low insurance penetration rates, obscure and complex products and a high cost of doing business present three problems that the east African market must quickly solve if it is to accelerate growth.

However, the key message is one of hope – the solutions are out there and the opportunities exist for east African insurers to increase their penetration levels and open up new markets.


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