Africa’s Insurance Market: Where is the Boom?

LAGOS (Capital Markets in Africa) – By global standards, Africa’s insurance market remains relatively underdeveloped, accounting for just under 1.2% (0.06 trillion USD) of insurance premiums written globally in 2017. Insurance penetration rates averaged 2.77% in 2016, compared to global averages of 6.28%. Penetration rates in some of the more developed markets such as Cayman Islands topped 22.60% and the UK 10.16%, while the least developed markets such as Nigeria were as low as 0.27%. Insurance penetration, which measures the percentage of total GDP spent on insurance premiums is a good indicator of the level of insurance development in a country.

In Africa, the insurance market is highly concentrated and dominated by South Africa, with premium volumes of 41 962 million USD or 69.12% of the total African insurance market2. Insurance penetration rates in South Africa stood at 14.27% in 2016, which shows the relatively high level of market maturity compared to the rest of the continent.

Kenya’s penetration rates stood at 2.80% and Nigeria at 0.27%2. While South Africa is up there with the more developed markets, the rest of the continent is un(der)insured. Even in South Africa itself, the insurance penetration is highly concentrated on a very small percentage of high net worth individuals, and most of the majority are poor and un(der)insured. South Africa is a very unequal society, with a Gini coefficient of 0.63 in 2015.

There are many reasons for the low level of insurance uptake across Africa, some of them cultural, some of them related to access issues, but to a large extent it comes down to economic and affordability issues. To improve insurance uptake to global levels, the continent will need significant economic growth and wealth creation for its citizens. It will also need to close the gaps between the rich and the poor, to grow the middle class and create a more equal environment for its citizens. Insurance is a grudge purchase. Given lower wealth levels, insurance in Africa has to be sold and is not readily bought.

Africa’s economic growth depends largely on the global economy, being predominantly a commodity exporting continent. Global Economic growth rates have been sluggish since the 2008 financial crisis, when global GDP growth rates dropped below 0% from averages of 5% in 2007. Drops in commodity prices, following reduced global demand in 2016 severely dented Africa’s hopes for economic recovery.

An extract from the INTO AFRICA August Edition: Driving Africa Opportunities. The article is written by Victor Muguto (Partner and Insurance Industry Leader, PricewaterhouseCoopers South Africa) and to read the full article, please download by clicking: INTO AFRICA PUBLICATION: AUGUST 2018 EDITION.