A new report by Standard Bank has highlighted the massive opportunity for insurance providers to tap into the fast-growing economies in the rest of Africa, where insurance penetration rates are far lower than in SA.
In the 17 African markets where Standard Bank has an established presence (outside of SA), more than half the countries analysed had insurance penetration rates of 2% or less based on the latest available data.
That compares to an insurance penetration rate, a measure of insurance demand calculated by dividing the value of gross written premiums in a country by its GDP, of 14.4% in SA in 2020.
Standard Bank released its report titled The Rapid Evolution of Insurance in Africa to the media on Tuesday.
Given that economic growth in the rest of Africa typically outpaces that in SA, Standard Bank believes it presents an opportunity for insurance firms, given a Deloitte analysis that showed gross written premiums in non-SA markets on the continent grew almost twice as fast as GDP between 2007 and 2016.
Standard Bank’s report also cited a McKinsey & Co report, which estimated that Africa’s insurance market would grow at a compound annual rate of 7% a year between 2020 and 2025.
“In some African countries, insurance penetration is happening so rapidly that gross written premiums — the total value of premiums written by an insurer — is surpassing GDP growth,” said Deon de Klerk, head of insurance at Standard Bank.
“Across the continent financial service providers, technology companies and mobile network operators are working in unison to drive access, affordability and inclusivity to the African insurance market.”
While the IMF expects Sub-Saharan Africa’s economy to grow by 3.8% in 2022 following an estimated 3.7% expansion in 2021, the region is still struggling to recover from the devastation caused by the Covid-19 pandemic in 2020. In fact, when the IMF made its 2022 economic growth prediction in October last year, it warned that the recovery was the slowest relative to other global regions.
Nevertheless, Standard Bank’s report still highlights the attractiveness of the continent’s population of more than 1-billion people, of which almost 60% are below the age of 25. This so-called demographic dividend has convinced companies like insurance giant Sanlam to partner with mobile operator MTN to roll out insurance and basic savings products on the continent to better serve its rapidly expanding consumer market.
Sanlam CEO Paul Hanratty told Business Day in March that by partnering with MTN through a fintech offering it could avoid having to set up dedicated operations in each targeted African market to write insurance policies. By partnering with a mobile operator it could simply overlay its licensing network and expertise in financial products to generate additional profit with minimal capital outlay.
Standard Bank’s own insurance report showed that at end-2020 no less than 495-million people were subscribed to mobile services in Sub-Saharan Africa, representing 46% of the region’s population. That was an increase of almost 20-million people when compared to 2019.
The lender’s buyout of minority shareholders in Liberty, which will now be integrated into Standard Bank Group, could also be an opportunity for the bank to offer more short- and long-term insurance products to its clients in the rest of Africa.
“Powering this era of innovation in Africa’s insurance industry is the strategic use of partnerships,” said De Klerk. “What this research has shown is that true change comes from collaboration and this is what is making the greatest difference across the African continent.”
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