Global financial instability and some political risks are still evident as impediments in African markets, but the region still presents an opportunity for growth and untapped demand, notes a special report from rating agency A.M. Best.
“Given anticipated development of gross domestic product (GDP) in the region,” the continent presents a good opportunity for the industry, notes the report, “Africa’s Diverse Insurance Markets Offer Growth Opportunities, Untapped Demand.”
The oil and gas industry, for example, has fuelled development in Nigeria, the largest insurance market in West Africa, A.M. Best says. The South African market also has a developed economic base and mature life sector, the report suggests, allowing some domestic insurers there to look beyond the country’s borders and in some cases, beyond Africa.
“Countries with stronger economies—often driven by the energy sector and mining—have enjoyed greater demand for insurance, while affordability remains an issue in poorer African countries,” commented Carlos Wong-Fupuy, A.M. Best’s senior director of analytics. “Various factors and commonalities between some of these countries have encouraged a number of regional and pan-African initiatives and relationships among some market participants,” he added.
The 54 countries in Africa are naturally very diverse, the report notes. For countries where affordability is more an issue, rather than those with more developed economies, microinsurance has become more common.
“Insurance penetration in Africa is growing, but from a very low base,” Yvette Essen, report author and Director of Industry Research, Europe & Emerging Markets noted. “Insurers are attempting to make insurance more accessible through microinsurance and, to a lesser extent in certain countries, through Takaful product offerings that comply with Islamic Shari’a law.”
Industry consolidation is also a concern in Africa market, the report notes. Premiums from only six countries (South Africa, Morocco, Egypt, Nigeria, Algeria and Kenya) represented 89.2% of total non-life and life premium on the continent in 2011, according to A.M. Best.
“Increases in minimum capital levels have resulted in some industry consolidation, although A.M. Best still considers some markets to be crowded,” the company notes.