Retail insurance gets a boost as Africa Re, ILO partners on micro insurance

The African insurance market with penetration rate of less than 4 percent despite its huge population would soon receive a boost, as key industry player in the continent, Africa Reinsurance Corporation (Africa Re) plans a major deal that would deepen penetration through micro insurance.

Africa Re, in a new deal with ILO Impact Insurance Facility (the Facility) seeks to support and enhance the development of micro insurance markets in African countries.

“This partnership will develop the capacity of insurance providers to offer valuable insurance products to the financially excluded population, and will promote cross country collaboration and sharing of good practices among African countries, BusinessDay learnt from the partners.

According to them, this partnership will also strengthen substantially Africa Re’s efforts in further developing African insurance markets.

The world’s insurance industry is dominated by wealthy developed countries. In fact, the Group of Seven (G7) alone accounts for almost 65 percent of the world’s insurance premiums even though it covers just over 10 percent of the world’s population, according to report by KPMG. In those seven countries, an average of $3,910 was spent on insurance premiums per capita in 2012, according to the reinsurer Swiss Re.

In comparison, people in emerging markets spent an average of $120. It would come as no surprise therefore that. The insurance market in Africa is still underdeveloped as most Africans cannot afford insurance premiums yet.

Access to insurance products only starts to increase quickly in the upper middle Income brackets and so with most Africans still just struggling to meet their basic food and other day-to-day needs, insurance is still a long way off for the majority of Africans.  Apart from a lack of means, other reasons for low insurance penetration in Africa are. The insurance penetration ratio, which is the gross value of insurance premiums as a Percentage of GDP, is often used as a measure of how deep a country’s insurance market is.

According to the reinsurer, Swiss Re’s global insurance report, total premiums in Africa amounted $71.9 billion in 2012, which translates into a penetration rate of 3.65 percent.

As one would expect, this is well below the global average, which is 6.5 percent, though it is above the average for emerging markets of 2.65 percent show the potential for micro insurance in the continent.

Analyst says insurance companies traditionally target only the richest 5 percent of the adult population, with most poor people having no insurance. Even in South Africa, which has a well-developed insurance market, less than 30 percent of low-income adults have insurance. The figure for the rest of Africa is even higher. This presents an opportunity for micro-insurers to sell low-cost products to the poor.

It would come as no surprise therefore that the insurance market in Africa is still underdeveloped as most Africans cannot afford insurance premiums yet. Access to insurance products only starts to increase quickly in the upper middle income brackets.

With most Africans still just struggling to meet their basic food and other day-to-day needs, insurance is still a long way off for the majority of Africans. Apart from a lack of means, other reasons for low insurance penetration in Africa are: People do not trust financial service providers; given how poor Africans are and how challenging  the business environments are; there  is not enough incentive for multinational companies to enter African markets and develop the sector; there is also a lack of reliable information, making it very difficult to assess people’s creditworthiness;  the legal and judicial systems are poor; there is a lack of human capital and expertise; shallow financial markets make it difficult to raise enough money to capitalise insurance/re-insurance companies; and communities often make use of informal forms of insurance rather than using the services of formal insurers.