With over 25 years of experience in the insurance sector in Europe and Africa, Constant Yao Djeket, current Managing Director of NSIA Assurances Togo and author of the book: ‘L’essentiel de l’Assurance vie’ (The Essentials of Life Insurance), is a leading player in the insurance world in the CIMA zone.
In this interview, he discusses the role of insurance as a tool for savings, financial inclusion, mobilising human resources in companies and financing African economies. He also outlines possible solutions to enable life insurance to take off and play its strategic role to the full.
What is your view of life insurance in Togo, and indeed in the CIMA zone?
In the CIMA zone, insurance is experiencing real growth. There are countries where growth rates are in double digits. However, its contribution to development remains underestimated.
Despite this growth, the development of life insurance continues to be hampered by several factors. These include low incomes, the proliferation of unregulated professions, low levels of access to banking services, competition from traditional tontines, and products that are not adapted to local realities.
You are the author of a book entitled ‘L’essentiel de l’assurance vie’ (The Essentials of Life Insurance). Why write about life insurance?
In my experience, the strategic role of life insurance is not well understood. In addition to its role in social protection, life insurance is a means of mobilising local savings. These savings, collected through insurance companies, enable them to invest in government bonds and the stock market to finance development.
Today, our governments borrow primarily from abroad, i.e. from the savings of other countries. However, we have internal savings capacity that remains largely untapped. Our populations of farmers, market vendors, artisans, smallholders, etc., who do not save either to deal with life’s unexpected events or for their retirement, have opportunities to save, but these are not being exploited.
These savings not only play an important social role, but also enable insurance companies and pension funds, which are institutional investors, to purchase government bonds. This allows our governments to borrow locally in the same currency rather than incurring debt in foreign currencies, which can sometimes be too costly, to finance their spending. This is the fundamental reason I wrote this book: to take a different look at life insurance.
Commonly perceived as a means of social protection and provision, you argue in your book that life insurance is a tool for saving, wealth transfer, financial inclusion, human resource management and tax optimisation for businesses. How does life insurance play all these roles?
The best-known type of insurance in our region is motor insurance, which provides compensation in the event of an accident. But life insurance is essential for individuals, as it allows them to save money. And we save either to pass on wealth, manage unforeseen situations, for our retirement, or to finance our children’s education… These savings can be made through various insurance products.
Life insurance can also be useful for businesses, as employees who know that their employer cares about them by providing supplementary pension insurance will be more committed and motivated, which can improve the company’s productivity.
Companies can also save money through end-of-career benefits, which can be provided through insurance policies. And by doing so through insurance contracts, companies benefit from tax breaks. Life insurance thus becomes a tool for tax optimisation.
It is also a tool for transferring wealth. When wealth is transferred to heirs, an inheritance tax is payable. Very often, heirs do not always have the resources to pay inheritance tax. Life insurance, with provident products, can provide capital to pay inheritance tax in the event of a parent’s death, allowing the heirs to enjoy the full benefit of the estate.
In Togo, 360,000 people contribute to their retirement pensions, representing 4% to 5% of the population. The proportion is roughly the same in other sub-Saharan African countries, where private sector employees and civil servants contribute to their retirement pensions.
But in Burkina Faso and Senegal, there is a large population of livestock farmers who have resources. There is therefore no reason why these livestock farmers should not be able to contribute to a pension scheme. Whether for the private sector or the state, the pensions of livestock farmers, farmers, planters (in Ivory Coast there are more than a million planters), agricultural workers and traders are all resources for pension funds, which insurance companies or the state can manage.
But products must be adapted to the realities of the sectors of activity. A livestock farmer who sells his cattle or milk to earn money does not have a monthly income. He can contribute perhaps quarterly, half-yearly or each time he sells his livestock, just like a farmer who has two or three harvest seasons. Imagine millions of farmers, livestock breeders and traders contributing 100,000 CFA francs or 200,000 CFA francs per year, or more, depending on their means! All this money raised by insurers would be invested in government bonds.
But today, these resources are too small in relation to the enormous possibilities that exist. We need to realise that it is not only employees who need pensions, but the entire population. A woman who sells at the market needs resources to survive when she can no longer go to the market!
Insurance, and especially life insurance, is perceived as a luxury product reserved for the elite, for the rich. Is this perception right or wrong?
It is understandable, because many insurance companies develop insurance products in their offices, copying or drawing inspiration from products in developed countries and transposing them into offers that they propose to the population. As a result, these products are not suited to the realities of our countries.
This is the case with monthly premiums for people without a monthly income. The vast majority of the population is therefore excluded from traditional insurance. At the insurance company where I work, we co-develop products with the target populations through focus groups with women who sell at the market, to identify their needs and offer corresponding insurance products. And the insurance premiums do not necessarily have to be paid monthly.
This new approach will gradually transform the perception that insurance is not just for an elite, but that everyone needs it. In fact, it is the poorest who have much more protection than the wealthiest. The rich do not necessarily need insurance because they are able to cope with hard times and deal with the unexpected.
Some believe that for life insurance to grow more quickly, compulsory insurance should be introduced…
It is not easy to answer this question, because for anything compulsory, penalties must be put in place for non-compliance. And this is not always easy to implement. This is the case with motor vehicle insurance, which is not complied with in most countries.
The issue will have to be addressed on a sector-by-sector basis. Companies of a certain size could be required to set up supplementary pension schemes to enable employees to receive an income after retirement that is relatively close to what they earned while working, so that they do not fall into poverty.
Today, in the pension funds in our countries, pensions are between 30% and 50% of the income earned while working. For example, in Togo, we have a collective agreement on insurance that requires 20% of monthly salaries to be contributed to retirement, with 15% paid by the employer. This type of solution can be implemented in certain sectors of activity, depending on the size of the companies.
Even if compulsory insurance is introduced, it will only affect 5% of the population, namely, employees. This obligation will create double standards. That is why we need to place greater emphasis on raising awareness, with government involvement. If there is greater awareness and people voluntarily sign up, it makes more sense to be applied much more widely. And where compulsory insurance can be introduced, we will do so!
Today, with the emergence of the middle classes, population growth, advances in education and digitalisation, can we say that life insurance has a future in the CIMA zone?
Yes. Life insurance can only grow when we look at its current level. The more the population grows, the more people will have higher incomes, and the more the population’s incomes increase, the more life insurance will grow. Today, the development of life insurance is linked to urban development and economic development. But beyond traditional life insurance, sector pension funds are to be set up.
What can be done to ensure that life insurance can fully play its role as a lever for socio-economic development in Africa?
Our governments need to understand the strategic role of life insurance. This is fundamental. If we leave it to companies to fight to raise awareness, life insurance will develop, but it will take time.
This is because we have relatively low communication/marketing budgets that prevent us from investing heavily to reach all these populations. There needs to be an awareness that insurance inclusion is essential for development.
To ensure this inclusion in insurance, all causes of exclusion from insurance must be addressed: literacy issues, compliance with compulsory insurance requirements, insufficient geographical coverage, pension fund issues, etc. If solutions to this exclusion can be found, the sector can be developed rapidly, and insurance can play its strategic role. Local authorities, the State and insurance companies need to get involved, as they all have a role to play.
And by bringing all stakeholders to the table, I wouldn’t say a Marshall Plan for insurance development, but something similar, we will be able to define the main strategic priorities to enable this growth in insurance. This is fundamental and must be understood!
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