"Many African insurers lack stability" finds poll, yet execs in region are upbeat

Many African insurers are insufficiently capitalized and lack financial stability, which could dampen consumer confidence, according to a the 2nd Africa Insurance Barometer, launched at the 44th AIO Conference & General Assembly in Kampala, Uganda.

The survey, of 29 senior executives from regional and international insurers, reinsurers and brokers, also noted that other concerns include inadequately harmonised regulatory frameworks across the continent, which frequently are poorly enforced, and the persistent lack in skills and local talent.

But, despite these challenges, Africa’s insurers remain upbeat about the prospects of their markets. Those polled also contend that the young, growing and more affluent population as well as investments in infrastructure and exploitation of the continent’s raw materials will drive demand for insurance protection.

“The Africa Insurance Barometer provides a comprehensive overview of the current state and future prospects of the $64 billion African insurance market,” said Prisca Soares, the Secretary General of the African Insurance Organisation.

“The executives interviewed for this year’s edition expect the underlying market fundamentals to prevail over the economic decline that many markets witnessed in 2016. A majority of our interviewees assume that premiums will outgrow GDP. Africa’s insurance penetration, which currently stands at 2.9 percent or less than half of the global average will translate into accelerated premium growth – provided global demand and commodity prices continue to bounce back in 2017 and 2018.”

The survey noted that, due to new technology, in particular mobile telephones and the internet, a broader array of products and distribution channels is available to access the continent’s corporate and partly untapped consumer base, including its growing middle class.

However, adequate regulation is needed to control and facilitate the market’s expansion. Some requirements tightened in the past year. But interviewees are also concerned about overregulation with a tendency to burdening insurers with additional cost, complexity and incoherent regulatory enactment.

The poll found that pressure on insurance rates is most pronounced among Africa’s commoditized commercial lines of business, where barriers to entry are low and customers are insurance-savvy, opportunistic and fight for the best price. Obviously, non-commoditized lines, which require a high specialization, are able to escape from some of the pricing pressure.

As a result, interviewees predict that rates will remain subdued over the next 12 months. Profitability still benefits from the adequate original pricing of the risks, but declining rates, inflation and claims costs reduce margins.

Going forward almost 80 percent of interviewees predict stable or even rising profits, as personal lines are viewed as less volatile and exposed to cutthroat competition. According to 70 percent of executives, access to local skills and talent is a challenge for African insurers. While expertise is generally hard to come by in small markets, specialists, such as actuaries, are scarce even in the more populous markets.

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