Library: McKinsey – Africa’s insurance market is set for takeoff

Executive summary :

Africa is a hot region for insurance

Africa is one of the world’s hot regions for insurance. Steady economic growth in most countries combined with a largely underdeveloped insurance sector have positioned the continent as the second fastest-growing region for insurance globally after Latin America. Prior to the impact of COVID-19, the insurance market was expected to grow at compound annual growth rates (CAGRs) of 7% per annum between 2020 and 2025, nearly twice as fast as North America, over three times that of Europe, and better than Asia’s 6%.

South African insurance under pressure

With the continent now battling the novel coronavirus, our modeling in South Africa and recently published financial results across the continent indicate that these projections are likely to take a knock over the next three years (see COVID-19 is dampening South Africa’s insurance sector below).

The pandemic is profoundly affecting both lives and livelihoods, and consumers are cutting back on discretionary expenditure—including insurance—in the face of income and market volatility. However, this impact is expected to delay rather than alter the pattern and potential of future growth. And in some cases, the crisis may accelerate existing trends—notably the shift toward digital and remote channels, which has the potential to offer new opportunities to both insurers and consumers.

Five ways to success in African insurance

This article outlines the current state of the diverse African insurance market and the trends that are shaping it, and articulates five imperatives for achieving success on the continent.

We believe that a strategic approach that takes into account the unique characteristics of African markets and looks to collaborate with regulators to drive reform and safeguard consumers could unlock significant value not just for industry players but for society more broadly at this critical time.

COVID-19 is dampening South Africa’s insurance sector

Before the COVID-19 pandemic struck, South Africa’s insurance sector was already dealing with an economic recession and ratings downgrade. The impact of the pandemic has led to a further drop in new business and retention leading to lost revenues and a population exposed to risk.

Across all insurance lines, McKinsey’s modeling suggests that the gross written premiums (GWP) pool is likely to fall by 15% over the next two years, only returning to pre-COVID-19 levels in 2024. This is roughly double the impact of the 2008 global financial recession—and the sector will take twice as long to bounce back.

Life will be different

Life insurance will be hardest hit, with a potential contraction in GWP of 18%, compared with the 9% drop in the 2008 financial crisis. This is likely to leave customers vulnerable to being underinsured at a time when they need cover most. Motor insurance will fare relatively better, with GWP volumes falling around 8%.

Overall, the general insurance book will be spared the mega blow facing life insurance. GWP in this segment is expected to fall by 5%, in line with GDP, which is forecast to contract by between 8% and 10% in 2020.

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