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When KPMG, the advisory company, held its inaugural East Africa Insurance Conference in February, organisers were surprised that more than 100 industry participants attended. James Norman, KPMG’s regional insurance head, was equally enthused when a similar number attended the launch of a report on the sector last week.

“There’s a real buzz about the sector because opportunities are immense,” he says. “There’s a young population, a growing middle class — most with smartphones — and an increasingly large diaspora coming back,” he says. “There’s a whole new generation of savvy consumers with disposable incomes and large infrastructure projects being built.”

Lukas Mueller, head of north and sub-Saharan Africa at reinsurer Swiss Re, is also bullish on the region, describing it as a “giant waking up”. He says the opportunities are many and varied — from infrastructure and agriculture to catering for the growing middle class.

“The insurance market is closely linked to economic growth,” he says. “When incomes rise you have more insurable assets.” However, he also describes the sub-Saharan African insurance market as a “diverse picture”.

South Africa accounts for almost 80 per cent of all premiums in sub-Saharan Africa and the country has an insurance penetration rate — the total value of insurance premiums as a proportion of GDP — of about 13 per cent, well above the developed world average. Of the rest, Kenya is among the most advanced, with a penetration rate of 3 per cent. Nigerias, in comparison, is about 0.3 per cent, even though it is Africa’s largest economy.

This diversity mirrors the continent’s broader economy. Commodity exporters, such as Nigeria and Angola, are struggling to achieve meaningful growth, while those nations with more diversified and less commodity-dependent economies — such as Ivory Coast, Tanzania and Kenya — are doing much better.

Delphine Maidou, chief executive of insurer Allianz’s global corporate and speciality Africa arm, says insurers should focus on the markets “that are getting the biggest foreign direct investment projects” but that the so-called “laggards” should not be neglected. “You’ve got to stick with them while diversifying your portfolio because eventually the cycle will come back,” she says.

Allianz is following her advice. Last October it opened a division in Kenya, its 12th sub-Saharan Africa operation. It comes a year after Prudential, the London-based insurer also started operations in east Africa’s largest economy, although that was through the purchase of a local player, Shield Assurance. In December 2013 Prudential bought Express Life Insurance in Ghana to enter that market.

Other deals include South Africa’s MMI Holdings buying two-thirds of Kenya’s Cannon Assurance last year, which then merged with Metropolitan Life Kenya.

Muammar Ismaily, a Nairobi-based insurance analyst at Exotix Frontier Research, expects there to be much more consolidation, particularly in east Africa. “There are dozens of players, but only a handful control the majority of the market,” he says. “And with new capital adequacy rules coming in Kenya in 2018, many companies are going to have to merge or be taken over if they want to survive.”

The new rules in Kenya, which come into effect in 2018, are part of what analysts say is a growing trend of improving regulation, albeit from a low base and with a need for firmer enforcement.

One example of this need for tougher enforcement is the extent of fraud in the market. KPMG’s Mr Norman estimates premiums in sub-Saharan Africa would, on average, be 20 per cent lower if it were not for fraud.

Part of the reason for the fraud, he believes, is insurance companies’ failure to innovate in controlling costs, keeping tabs on their agents and, most importantly, getting to know their customers.

“There’s a trust deficit gap — people don’t buy insurance because they don’t trust the providers,” Mr Norman says. “They don’t think the promise [that a claim will be paid] is going to be delivered. Claims are not paid quickly, fairly or correctly. It’s a huge pain point across the continent.”

There are some signs of innovation. Nigeria, for example, is starting to see the first price comparison sites, such as Topcheck. Meanwhile, Ms Maidou says Allianz is seeing high demand for its recently created cyber insurance products. Another innovation, she suggests, is greater use of technology — for example, using satellites to assess agricultural claims — which is expected to become increasingly important for the industry as large scale commercial agriculture takes off. “Do you need to go to a field in a country where you don’t have an office when a satellite can do the job for you?” she asks.

However, it is at the other end of the market, in microinsurance, where the greatest innovation and disruption is emerging. Katerina Kyrili, head of African business development at Bima, which distributes and manages microinsurance payments in 15 developing countries, says insurance is not just for the relatively wealthy. She says this is indicated by Bima’s 23m customers, 40 per cent of whom are in sub-Saharan Africa and 60 per cent living on less than $2.50 a day.

Offering life insurance for premiums as low as $0.50 a month — for a potential payout of $500 — Ms Kyrili says Bima provides products that are easy to understand, such as offering cash for medical bills rather than blanket payments.

Its view is that the solution is about product design, customer education and distribution, she says. “It’s not just about affordability but an experience that’s accessible, simple enough to communicate and won’t create confusion but create incentives.”

Copyright The Financial Times Limited 2017. All rights reserved.
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