By Obinna Chima
McKinsey & Company, a global management consultancy services company, has described the insurance sector in Nigeria and some other countries in Africa as one of the world’s hot regions for insurance penetration.
The global firm stated this in a report titled: “Africa’s insurance market is set for takeoff.”
It noted that steady economic growth in most countries combined with a largely underdeveloped insurance sector have positioned the continent as the second-fastest-growing region for insurance globally after Latin America.
Prior to the impact of COVID-19, the insurance market was expected to grow at compound annual growth rates (CAGRs) of seven per cent per annum between 2020 and 2025, nearly twice as fast as North America, over three times that of Europe, and better than Asia’s six per cent, it stated.
However, it pointed out that the pandemic which had profoundly affecting both lives and livelihoods, has seen consumers cutting back on discretionary expenditure—including insurance—in the face of income and market volatility.
“However, this impact is expected to delay rather than alter the pattern and potential of future growth. And in some cases, the crisis may accelerate existing trends—notably the shift toward digital and remote channels, which has the potential to offer new opportunities to both insurers and consumers.
“We believe that a strategic approach that takes into account the unique characteristics of African markets and looks to collaborate with regulators to drive reform and safeguard consumers could unlock significant value not just for industry players but for society more broadly at this critical time.
“The African insurance market’s immaturity points to significant scope for growth Africa’s insurance industry is valued at about $68 billion in terms of GWP and is the eighth largest in the world—although this is not equally distributed across the continent.”
Furthermore, the report noted that markets in the region have been inconsistent in terms of size, mix, growth, and degree of consolidation, with 91 per cent of premiums concentrated in just ten countries.
South Africa, the largest and most established insurance market, accounts for 70 percent of total premiums.
“In the Southern Africa region, 54 percent of premiums are for life insurance. Non-life insurance, however, plays a larger role in Anglophone West Africa, North Africa, East Africa, and even more so in francophone Africa.
“The level of maturity in these six regions is low, relative to global reference countries, as measured by insurance density (premium per capita).
“While most African countries have experienced double-digit insurance growth in CAGR in local currency over the last five years, this has mostly been driven by economic growth, rather than deepening market penetration,” it added.
According to the report, levels of insurance penetration in Africa are half the world average measured as a percentage of Gross Domestic Product (GDP), and premiums per capita are 11-fold lower than the world average.
It further stated that the bulk of growth in Africa was likely to come from pensions and individual life insurance— which is the fastest growth line of business on the continent, although starting from a smaller base compared to non-life insurance.
According to the report, while motor insurance is the largest contributor to non-life insurance—driven by requirements for a compulsory minimum level of insurance, often third-party liability in countries like Morocco, Kenya, Nigeria, and Egypt—accident insurance, health insurance, and property insurance have all shown faster growth in recent years.
The prospects for growth in commercial lines are also good, it stated, noting that in Nigeria, for example, commercial insurance has performed strongly, with oil and gas growing at nine per cent per annum and marine and aviation at 10 percent per annum between 2014 and 2018.
“In 2018, oil and gas insurance and marine and aviation insurance accounted for 34 per cent and 11 per cent, respectively, of nonlife gross premiums in that country. In Ghana, the Ghana Oil and Gas Insurance Pool (GOGIP) almost doubled from $25 million in 2016 to $48 million in 2019 and represents approximately 15 percent of total nonlife premiums in that country.
“Insurance in Africa is on the move, and several trends show promise for the sector. Our analysis highlights five that will be pivotal in determining how the sector evolves in a post-pandemic world.
“And where penetration is occurring, it is mostly accompanied by structural reforms. Market liberalisation and deregulation, the enforcement of compulsory insurance, increased access through wider distribution, public–private partnerships, and regulation to support innovation and access have all been shown to build consumer trust and develop more resilient insurance industries with better-protected populations in comparable markets.
“And the Pension Reform Act of 2014 in Nigeria has benefited both consumers and the insurance industry alike, leading to a 70 percent growth in the sale of pension products in that country between 2012 and 2017.
“The shift to digital channels in Africa is well underway, and with that comes greater expectations of service delivery. While we are seeing a number of insurers starting to digitise customer journeys, significant opportunities still exist to accelerate this in many markets.
“The COVID-19 pandemic has accelerated this trend, by driving demand for digital and remote channels, and we expect this to continue beyond the crisis.”