Insurers must adapt to ‘informal’ African market

Insurance companies are struggling to gain a foothold in Africa, where populations tend to favour community insurance schemes called tontines. These are often informal agreements between trusted friends and family members, said in a report.

Insurance is overwhelmingly an issue for rich countries. This does not seem likely to change, as 80% of the world’s insurance policies are held by the richest 10% of the population.

“Insurance is quite a new thing in Africa”, said Claude Fischer-Herzog, Director of Confrontations Europe.

“For Africans, insurance remains an elitist product”, said Hermann Kouassi, Executive Director of the Economic and Business Club of the Diaspora (CEADI). “And the fear of fraud is very strong, and often justified,” he added.

But insurance, and particularly micro-insurance, has an important role to play in the economic progress of the developing world.

Micro-insurance, which is a form of protection against threats to the lives and livelihoods of low-income people in developing countries, represents a potentially vast market in Africa.

“In western and central Africa, 700,000 people hold micro-insurance policies that cost just €1 per year and guarantee their capital in the case of their death,” Frédéric Baccelli, Director General of Allianz Africa, explained.

“Insurance can secure a country’s economic growth against threats posed by the climate, for example,” said Jérémy Brault from Proparco, the branch of the French Development Agency specialising in private sector finance. “At Proparco, we have made insurance one of our target sectors.”

The insurance solution favoured by most communities in Africa is the “informal” tontine system. On the margins of traditional banking and insurance activities, tontines allow communities of individuals to save between friends, members of the same family or a community. “Tontines account for an important proportion of the African insurance market,” said Jérémy Brault.