Africa's insurance sector is struggling against tech and regulatory disruption

Africa’s insurance sector has been struggling since the Global Financial Crisis of 2008, although insurance companies are now looking to restructure their operations to better match the needs of the “new customer,” according to a new report from global professional services firm PwC.

For the insurance industry in Africa, disruption from the global trends in technology and regulation came at the wrong time. The 2008 global crisis shook the sector hard, and it has struggled to recover ever since. On the other hand, the sector has shown tremendous resilience in adapting to these trends, having stayed afloat under tremendous pressure.

In a new report, Big Four accounting and advisory firm PwC has analysed the various aspects of disruption and adaptation that Africa’s insurance sector has to contend with. In the technology domain, for instance, insurers now have a plethora of mobile applications that they can leverage to their advantage.

Most often, insurers in Africa have had to make use of intermediaries to get in touch with their customers, which has been expensive and time consuming. Now, as Africa moves towards 1 billion mobile internet connections over the next three years, insurers have direct access to their customers via mobile devices.

Outside of their customer base, the permeation of mobile technology has also created avenues to generate a larger customer base, through data analytical tools and social media marketing campaigns. Data analytics, incidentally, can now also be leveraged to identify customer needs and adapt product offerings to the same.

Regulatory disruption, on the other hand, has proven particularly hard to deal with, in light of the introduction of frameworks such as the IFRS 17 and other regulations in the risk-based prudential capital and market conduct regulations domains. Nevertheless, the stricter rules are allowing for firms to manage their risk better and allocate capital more easily.

In light of the burden placed by these challenges and the consequent efforts to overcome them, growth in the African insurance sector has been turbulent and sluggish at best – best measured through the growth rate in premiums across the continent in both the life insurance and non-life insurance domains.

Growth in life insurance premiums saw a 4% dip in the year after the financial crisis, following which they were back on the rise by 2010. Premiums in this domain grew by 47% in 2011, 46% in 2012, and 50% each in 2012 and 2013. Since then, the sector has entered a downward trajectory again, dipping annually to reach 41% by 2016.

A similar trend can be seen in non life insurance, which saw an increase in 2010 and plateaued at 22% from 2011 to 2013. 2014 was the last year of growth for non life insurance premiums, growing to 23% before declining to 20% for 2015 and 2016.

Growth has also been fairly uneven when examined geographically, which the report links to the GDP performance across the regions. GDPs in sub-Saharan Africa, for instance, have declined sharply since 2014, with the exception of South Africa where the GDP has been on the up. Insurance premiums in these regions reflect similar trends.

Insurance penetration in South Africa, for instance, stands at just short of 17%, which is far ahead of Namibia in second place on the continent with a penetration rate of 6.7%. Lesotho, Mauritius and Zimbabwe follow with penetration rates in excess of 4%. The largest GDP on the continent – Nigeria – has a dismal insurance penetration rate of 0.30%.