Supervisory harmony will boost African markets, says survey

Stakeholders in the insurance sector have identified inadequate regulation in Africa as a major setback to industry’s growth.

Also, global insurers are likely to continue to dominate when it comes to large and complex risks, according to the findings of the first Africa Insurance Barometer, a survey published by the African Insurance Organisation (AIO).

According to the report, which is based on interviews with 28 senior executives from regional and international insurers, reinsurers and brokers, the African insurance markets benefited to some extent from the economic boom of the past years, when regulation improved and insurance
gained relevance.

However, Africa’s insurance markets remain diverse and divided, according to the Barometer. About two-thirds of polled executives regarded the current state of insurance regulation as inadequate in their markets.

Lack of reliable data and statistics, low capital necessities and limited enforcement of regulatory provisions were identified as major drawbacks.

In some markets, too many under-capitalised companies led to excessive competition over price, rather than for service, a situation that might
erode consumer trust, it said.

The report also noted that while cooperation within the CIMA (Inter African Conference of Insurance Markets) markets in West Africa is a very
positive and successful example of regional collaboration, many executives called for greater cooperation among other African regulators.
Managing Director, Marsh Africa, Michael Duncan, said: “One of the key challenges in Sub-Saharan Africa is the inconsistent and ever-changing regulatory environment our industry is confronted with.

For multinational clients, intermediaries and insurers need to arrange cover for large risks and access global insurance programmes, even if only for a portion of these risks. But the process can be very frustrating, as there is no consistent way of achieving this across the region. What works in one market, will not work in another market environment.

Eventually, this lack of regulatory harmony is a major constraint to further growth in our markets.”

Due to excess capacity in the global insurance market and the attractive growth potential of the African insurance market, global insurers are expected to maintain, if not increase their market share in the continent’s insurance business, the Barometer said.

Many of the executives expressed concern over the continued flight of premiums, saying it is a threat to the viability of the domestic
insurance industry.

Protection against natural catastrophes is also seen as inadequate by more than 60 per cent of interviewees, as low penetration in this area
is due demand and supply side.

In general, there seems to be a tendency to underestimate the natural catastrophe loss potential, particularly in Sub-Saharan Africa, it noted. In addition, many companies lack the ability to offer relevant and affordable natural disaster insurance products, whereas consumers
are often unaware of the availability and potential benefits of such products, the report explained.

Head, North and Sub Saharan Africa, Swiss Re, Lukas Müller, said: “We expect more insurance capacity to flow into the African insurance
markets. First, capacity from the large global insurers is on the rise. Secondly, brokers are increasing their activities and bring in more
international capacity and, finally, as African insurers grow their presence across the continent through acquisitions and also by expanding their operations.”

African insurance premium volume in 2014 totalled $69 billion, down from $72 billion in 2013. Life insurance accounted for about two thirds of
the 2014 total, with non-life insurance accounting for the rest.