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Piggy’s Trading & Investing Tips: Africa positioned as fastest growing region for insurance

By Batanai Matsika 

THE 2021 OESAI (Organisation of Eastern and Southern Africa Insurers) Conference was held in Mombasa, Kenya, from August 21-25. Delegates from Eastern and Southern Africa converged to discuss critical issues affecting the insurance industry.

According to McKinsey & Co, Africa remains one of the world’s hot regions for insurance. Despite the negative impact of the Covid-19 pandemic, steady economic growth in most countries combined with a largely underdeveloped insurance sector has positioned the continent as a fast growing region for insurance.

Prior to Covid-19, the insurance market in Africa was expected to grow at a compound annual growth rate (CAGR) of 7% per annum between 2020 and 2025. The OESAI Conference was therefore relevant in terms of mapping the next growth trajectory for insurance players on the African region.

The OESAI is a member-based insurance organisation that aims to promote the business and practice of insurance across Eastern and Southern Africa. The principal activity of the OESAI is to encourage and enhance co-operation in the field of insurance and reinsurance and their related activities among companies operating in the region.

The OESAI was formed in 1973 out of the initiative of eight founding insurance companies in the region. Membership has grown to 135 companies and the vision is to be one of the leading global forums for promoting insurance business. The following are some of the key focus areas:

  • Co-operation: Members work in partnership with each other and promote collaborative development. OESAI also provides platforms for the sector leaders to learn, network and share best practice. This goes a long way to encourage and enhance co-operation in the field of insurance and reinsurance among companies operating on the African continent.
  • Research: In partnership research with firms, OESAI conducts regular topical studies on issues affecting the sector and share findings and recommendations with the industry with an aim to initiate relevant conversations on legal, regulatory and public policy issues.
  • Capacity building: OESAI organises country specific and regional training programmes, webinars and seminars on various topics in partnership with regional and international development partners.
  • Advocacy: As a regional organisation, OESAI is involved in policy making discussions and lobbying for conducive insurance regulation that support innovative ways of bridging the protection gap.

A major take-away from the 2021 OESAI Conference was that the Covid-19 pandemic negatively impacted lives and livelihoods. As a result, consumers were cutting back on discretionary expenditure — including insurance — in the face of income and market volatility.

That said, this impact is expected to delay rather than alter the pattern and potential of future growth. In fact, the crisis may have accelerated existing trends — notably the shift toward digital and remote channels, which has the potential to offer new opportunities to both insurers and consumers.

The digitalisation trend

A major trend that was highlighted during the conference is that digitalisation is rapidly transforming the insurance sector. Digital technologies are having an impact on the entire insurance value chain from distribution, product design to claims settlement and premium payments.

There have been several developments in terms of technological advancements and this includes; (i) smart devices, (ii) telematics, (iii) peer-to-peer insurance, (iv) autonomous vehicles, (v) drones and (vi) sharing economy.

Overall, digitalisation is impacting how insurers develop, design and underwrite their products.  As reiterated during the conference, digitalisation presented a massive opportunity for insurers post-Covid-19.

For example, advancement in some of the technologies listed below can enable the development of tailored products and can be used to overcome the constraints that inclusive insurance consumers face:

Peer2Peer platforms: These bring people together to absorb one another’s risks, with each member of a group contributing premiums to insure each other’s losses. The format is similar to that of mutuals, except that technology enables a much wider reach and scale in connecting people.

Digital platforms: These replace face-to-face elements of the insurance value chain with an online service, such as online brokers, online insurers, or even backend services to insurers

Technology-enabled partnerships: These refer to three-way partnerships between an insurer, distribution partner (be it a retailer, mobile network operator (MNO), digital commerce platform or otherwise) and technical service provider (TSP).

New data and analytics methods: These collect and analyse data to inform insurers about consumer needs and behaviour patterns. This category is composed of chatbots, telematics, machine learning and artificial intelligence (AI) and smart contracts.

Parametric/index-based insurance: The main use-case being agriculture and weather-related insurance and is especially impactful for groups that are vulnerable to climate risk. This category uses two types of technologies: data measurement equipment and distributed ledger technology to trigger pay-outs based on the index. It may also use the mobile phone for interacting with the consumer.

Conclusion

The rapid and smooth transition to digital processes in both sales and operations amongst insurance players largely avoided standstill in new business in 2019 and 2020. There is need for insurance players in Africa to build on this trend. That said, supervisors within the insurance industry should also encourage the responsible development of the digitalisation of the insurance life cycle by adopting the regulatory and supervisory approaches that are centred on constant engagement and collaboration with involved parties as well as monitoring of the impact of innovation in contained spaces.

  • Matsika is the head of research at Morgan & Co and founder of piggybankadvisor.com. — batanai@morganzim.com/ batanai@piggybankadvisor.com or +263 783 584 745.

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