Article Synopsis :
The African reinsurance market is less enthusiastic about the coming 12 months than it was a year ago and anticipates the influence of both economic and political uncertainties despite significant growth in Africa’s economies.
Africa’s economies delivered about 3.5% GDP growth in 2018, similar to the previous year and shade behind the global and emerging market averages of 3.6% and 4.8% respectively.
Yet, insurance premiums grew by 4.9%, and passing the US$ 7.5 billion mark for the first time, according to the authors of the report.
South Africa and Nigeria saw growth and the increasing sophistication of enforcement of risk-based capital regimes and tighter capital requirements make these markets more attractive.
Africa’s low insurance penetration is its greatest opportunity and should grow, but this has not yet happened. The reality has been an almost 10% decline over the past decade from 3.26% in 2008 to 2.98% in 2018. This may be reversed by the expansion of infrastructure and agricultural insurance
There remain many challenges. Trade barriers and over-regulation stifle innovation and limit access to markets. Economic volatility and political unrest are prevalent and both could derail the advances made in recent years.
Geopolitics are not the only concerns, however. Fierce price competition, unprofessional market practices and rising trade barriers are expected to negatively influence profitability and push up costs.
Natural catastrophes and climate change are also increasing in Africa, indicating it may not retain its low exposure to NatCat for very much longer.
A recovery in rates in 2018 didn’t last long. They are expected to be low or average as a lack in non-technical pricing causes undercutting, poor data quality and unprofessional behaviour.
As regulators tighten their regimes and capital requirements increase, so reinsurers must make use of additional funds that have raised.
Almost 60% viewed profitability as low as a result of rising claims, declining rates and rising costs. Even if rates improve, it will take more than a year for reinsurers to see a rise in profitability.
African providers will dominate, but some foreign players are looking for opportunity. However, the protectionist trend and launch of national reinsurers pushes up the cost of doing business. Local reinsurers need to be compensated for their loss in profitability and must therefore expand.
Exposure and premiums will grow in alignment with or ahead of GDP, but more might be done if they had the resources to deploy insurtech into their markets.
Strategic partnerships, pools or mechanisms of premium exchanges with other local or international reinsurers are being considered as a means to gain access to other markets and funding.
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Digital Insurer's CommentsAfrica is on the cusp of a massive population boom that will see its middle classes and youth markets grow exponentially.
Despite this, African economies struggle with low penetration, structural weaknesses in the industry and the same geopolitical problems that concern businesses around the world. Then there’s the added dimension of protectionism.
Its time will come, but the reinsurance market is a little soft at the moment.
Like every other region, African markets would benefit from digital transformation, but the local players don’t have the cash and the foreign players have yet to make their own transition successfully.
Its a waiting game, but advances in other markets will no doubt see rapid adoption when opportunities – whether finding or regulatory – become more attractive.
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