Experts task regulators on harmony to shape markets

Stakeholders in the Insurance sector have identified poor regulation in Africa as a setback to the industry development; just global insurers are expected to continue to dominate in large and complex risks.

These are some of the findings from the first Africa Insurance Barometer, a survey published by the African Insurance Organisation (AIO). According to the survey, which is based on interviews with 28 senior executives from regional and international insurers, reinsurers and brokers, the African markets have 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 fragmented, according to the Barometer. About two-thirds of polled executives described the current state of regulation as inadequate.

A lack of reliable data and statistics, low capital requirements and limited enforcement of regulatory provisions are mentioned by many executives as major drawbacks.

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

It explained that while cooperation within the CIMA (Inter-African Conference of Insurance Markets) in West Africa is a positive and successful example of regional collaboration, many executives called for greater cooperation among other African regulators, ideally leading to more harmonised regulatory regimes.

The 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, the need to arrange cover for large risks and access global insurance programmes, even if only for a portion of these risks, the process can be very frustrating. This is because there is no consistent way of achieving this across the region. What works in one market, will not work in another. Ultimately, this lack of regulatory harmony is a major constraint to further growth in our markets.”

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

Many of the executives polled said they were concerned about this continued flight of premiums, and perceived it as a threat to the viability of the domestic insurance industry.

Protection against natural catastrophes, especially drought, is also seen as inadequate (by more than 60 per cent of interviewees). The report said attributed the low penetration in this area to issues related to demand and supply.

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

The Head, North & 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.”