With a rapidly expanding population and some of the fastest growing economies in the world, Africa could be a rich seam for insurers who make the right move
Third to only China and India, Africa has one of the largest populations in the world, and it is expected to double by 2050 as it outstrips Asia as the most populous continent in the world.
Add to that the fact that 60% of the population is under the age of 25 and you start to see why the region is being highlighted as one of the biggest opportunities for insurers looking to expand their global footprint.
But with high levels of extreme poverty across many regions of the continent, and insurance penetration remaining stubbornly low in much of Africa, challenges lay in wait for those looking to enter the African market.
But sensing the opportunities that came with those challenges, Adan Abbey, co-founder and president of Horn of Africa Insurance, based in Somaliland, was not phased.
“With every challenge comes an opportunity,” he said. “When I look at how our business has changed over the past year, we are insuring more factories because people are now looking at Africa as a cheaper destination for manufacturing. Ethiopia, for example, is fast becoming a major garment manufacturer.
“We are also starting to see major infrastructure improvements across the continent, and that is all leading to an increase in the amount of insurance activity.”
A Continent-wide Free Trade Agreement
Plans are also afoot to create a Free Trade Agreement that spans the whole of Africa, allowing continent-wide free trade and creating the conditions for a surge in cross-border trade and investments.
All of this means growth in insurable activity, increasing the opportunities available for insurers moving into the region, as well as increased foreign investment capital.
Since launching his business, Abbey has invested heavily in improving the perception of insurance in the region, and his strategy is starting to pay dividends as the local mindset becomes more open to the concept of modern insurance.
“That strategy is starting to work for us, and that is a good thing because then the flood gates open,” he said. “Before we came in the tribal system had its own form of mutual insurance where the tribe came together and paid any claims the tribe had.
“I have even had a tribe call me, and I was very impressed because he came with a piece of paper saying that for the last three years as a tribe we paid £250,000 in claims, and listed everybody and all of their cars”
Brendan Plessis, executive vice president, head of strategic business development at AXA XL, said there are also great opportunities for reinsurance as a way to stimulate even further growth in the region, not only for the (re)insurance industry, but also across different sectors.
“Reinsurance plays a critical role in developing the market in Africa,” he said. “By having a secure source of funding available in advance of an event, this helps lessen the adverse impact to people, enterprises and countries.
“This means that any destroyed assets, as well as the lives of those reliant on them, can be repaired, rebuilt and, in many instances, to a higher level than before. This all helps attract additional investors and supports a precious cycle of the fundamental benefits of why insurance is critical.”
Abbey warns, however, that insurers should be wary of chasing the headlines when building their expansion strategies.
“Insurers need to be strategic about the markets they get into and not just chase the headlines,” he said. “Africa is arguably the most exciting region in insurance right now, yet it is not without its own set of unique challenges.”
But just how do (re)insurance companies make the most of these opportunities without falling foul of local challenges?
Abbey said it is all about partnerships: “I believe that through partnerships that merge local expertise, international best practices, and innovative business models, insurers will find success on the continent.”
The Dubai World Insurance Congress 2020 is hosted and organised by Insurance Times’ sister title, Global Reinsurance, and the Dubai International Financial Centre Authority. Read all the action from day one, as well as coverage of all the satellite panel sessions here