The Covid-19 pandemic had negative impacts on premium remissions, especially from 2020 through to 2021. However, vaccines and stimulus spending helped the world emerge from the pandemic.
Nonetheless, the pandemic presented an upside to the insurance market: elevated risk awareness as both individuals and businesses now opt to buy protection from future pandemics and other natural occurrences.
Globally, Swiss Re (Sigma No 5/2021), one of the dominant forces in the global insurance markets, are expecting above-trend real growth of 3.3 percent in 2022 and 3.1percent in 2023 and see global insurance premiums exceeding $7 trillion for the first time in 2022.
In Africa, immaturity in the insurance market points to significant scope for growth. McKinsey estimates the value of insurance in the continent, in terms of gross written premiums, at $68 billion, representing a penetration of around 2.8 percent.
Markets are inconsistent in terms of size, mix, growth, and degree of consolidation, with 91 percent of premiums concentrated in just ten countries.
South Africa, the largest and most established insurance market, accounts for 70 percent of total premiums.
Outside of South Africa, there are three other major insurance regions, namely East Africa, West Africa and Southern Africa.
In East Africa, non-life insurance remains the key driver of growth with non-life premiums accounting for about 60 percent of total premiums.
This is primarily because, in a number of the East African markets, namely Uganda, Tanzania, Uganda and Rwanda, certain classes of non-life insurance are mandatory by law.
For instance, in Kenya, motor vehicle third-party liability is mandatory by law.
In Southern Africa, higher penetration levels of life insurance, especially in South Africa, drive parity between life and non-life insurance.
In West Africa, largely driven by Nigeria and Ghana, mandatory motor vehicle third-party liability insurance as well as growing commercial insurance, especially in marine and oil and gas sectors has titled the market in favour of non-life.
However, a core aspect of these markets is the high levels of the informal economy (characterized by irregular inflows of income).
And because insurance is still sold in white-collar packages in these markets, penetration has remained low. There is an expectation that policy reforms around micro-insurance will unlock some of these constraints.
There is also the expectation that the high levels of mobile phone penetration in some of these markets to play a significant role in driving uptake. Specifically, pension and individual life could be the next growth areas.
In Kenya, the informal sector is the next growth story for insurance. Wage statistics from the Kenya National Bureau of Statistics (KNBS) showed that in 2020, only 3 percent of the formally employed earned a monthly salary of above Sh100,000 and above.
About 70 percent of the formally employed earned a monthly salary of between Sh25,000 and Sh100,000. This means that the middle class has been pushed to the margins, making the price as the primary competitive point, hence widespread undercutting.
The truth is that the informal market is the next growth story for the insurance sector. The post-pandemic economy doesn’t look like it’s about to start churning out more collared jobs either.
This also means that product development needs to take a bottom-up approach as opposed to the current top-down situations where product design takes place in the boardroom.
It is also a segment that demands greater flexibility in terms of adaptation. Commercial banks offer a good example on this front. Finally, product distribution to this segment has to take the leanest approach.
An insurance firm cannot distribute such products through the traditional agency channel, which comes with its own in-built costs.
Technology now becomes an important tool in this distribution re-engineering. The mobile phone also offers product bundling opportunities between its owners-the telcos-and insurance firms.
After all, Kenya is the global leader in mobile payments.