Africa’s Insurance Market: Current Trends and the Keys to Success

Africa’s insurance market is growing, and the Financial Times refers to this market as going through a “giant waking up.” The younger population is growing along with its disposable income. This means a market is developing for insurable goods, and the discretionary income to insure the goods is also growing. One of OnFrontiers’ Experts, Paul Olayinka […]

April 20, 2022

Africa’s insurance market is growing, and the Financial Times refers to this market as going through a “giant waking up.” The younger population is growing along with its disposable income. This means a market is developing for insurable goods, and the discretionary income to insure the goods is also growing.

One of OnFrontiers’ Experts, Paul Olayinka has over 35 years of experience in the African insurance industry and has had such great success that he chose to step down from his position in NICON Insurance in order to establish HSD Associates. He now specializes in training others within the insurance industry. In a recent interview with OnFrontiers, Olayinka shared his wisdom and insight into Africa’s insurance market and how to succeed in the industry.

What regions in Africa are growing the fastest? What factors are causing this growth?

For the purpose of market development within the insurance industry, Africa is divided into five subregions: West Africa, North Africa, East Africa, South Africa, and Sub-Sahara.  Right now, South Africa has the greatest growth rate although it has slowed down recently. For the rest of the subregions, individual countries tend to dictate the growth rate. In West Africa, Nigeria and Ghana have the most influence. In East Africa, Kenya is the key country.

What has triggered the growth are an increase in income and an overall awareness and acceptance of insurance principles and practices. As the populace’s discretionary income increases, the opportunities to invest in insurance increase. Educating the people about insurance opportunities and your company’s products is key to succeeding in these emerging markets. Also, being sure to advertise new products you are developing will help create interest and excitement among the people. Because the people are not rich, offering microinsurance is also important. Having government regulations and standardized practices has created confidence in the industry among the people, so more are willing to give insurance a try. Some governments, like Nigeria’s, have even started making insurance compulsory.

Is any sector of the insurance market (life insurance, health insurance, property insurance, etc.) growing faster than the others? If so, why, and do you expect the growth to continue; or do you believe it is going to hit a plateau soon?

Which sector of the insurance market is growing really depends on the subregion of Africa. In South Africa, life insurance is growing and continues to have the greatest opportunity for growth. West Africa, on the other hand, will have the general insurance business growing faster because of ongoing development and foreign investments. In Muslim countries, the health insurance industry will exhibit slower growth because health management systems, where individuals are given a lump sum of money at the start of each year to use on medical expenses, are used rather than health insurance.

The factors that contribute to growth in the insurance market are financial stability, localization of policies, responding to the needs of the people, microinsurance, and increased channels of distribution. Financial stability means that reinsurance can take place, and if the policies are bought by other insurance companies within the same country, you have localization. Having up-to-date methods for payment and purchasing of policies means that people can easily buy insurance with their phones and computers. The increase in availability and ease of access will grow the market faster.

What indicators should an international insurance company look for that indicates the market is ready for another company or that the market is ready to grow?

First, the company needs to consider the income of the target market. Second, it needs to see what new products or services it can bring in as “value-added” to the existing business opportunities. How can it improve upon that which is available within the market? Third, the liquidity of the market should be considered. Is money flowing in and out? If money is not flowing in both directions, “the economy is not buoyant enough to sustain a new entry.” Fourth, the country’s regulations must be considered. Will they be welcoming, or will they limit the amount of equity you can hold in the company? Some countries, like Sudan, have liberal policies and allow you to take everything in and out of the country. Others will limit the amount you can hold to as little as 20%; others will let you go as high as 40%. Fifth, the level of corruption and takeout must be considered. Any company that invests in a foreign country needs to consider its “exit moves.” If a country has a high level of corruption and companies are not allowed to have much equity, then the risk of investment may not be worthwhile. Last, the effectiveness of the legal system and institutions needs to be considered and whether they can effectively support the incoming investor.

In order to succeed in Africa, what kinds of connections should a company make (political, local, business, etc.)? What kinds of hurdles will it face?

First and foremost, any incoming company should have a relationship with an existing company because most countries have equity limits. Having a partnership with a local business creates a local connection because the local businessman has a stake in both the company and the community and desires to see the company succeed. The community will be more welcoming to a business that has ties to the local community.

Before tying yourself to a local business, certain hurdles should be addressed. You need to find a country that is politically stable and will remain so for the next few years. You want to know how easy setting up and/or joining an existing business in-country will be and whether the country has equity limits. As is true when considering any international venture, you must consider the culture of the market you wish to enter. Culture is very important to the African people, and “perception of the people to foreigners differs from country to country. Where there are good intentions on both parties and where you have transparency in the business transactions, you have nothing to fear. . . .”

Because you have established a training and consulting business within the insurance industry, you have a lot of wisdom to share regarding how to actually go about dealing with clients and doing business. Would you share with me what you consider some “basics for doing business within the African insurance industry”?

The most important thing is trust. If the market, as in the insurance public, has trust in the insurance agents and organization as a whole, it will respond better. All the people want to know is that when and if they have a claim, the company will be there to meet the claim. Any company that invests in the African market needs to come with the intention of developing the market and getting developed with the market. It must view both those who purchase insurance and those who work for the company as clients. If a company can keep this idea in mind, it will succeed; for as the employees are bettered, they will give more back to the company. Any investment must be viewed as a two-way street. Most of the employees will come from the local community, and what they think will carry forth and affect business. Investors must also consider how regulators will view the organization. What the regulators think can spell success or failure. A company “must come with the intention of actually investing, not just profiting.” All of this should come together to form the business model.

As Africa’s insurance market continues to grow, investors can be a part of the process. Taking the time to study the political terrain and culture of the target market is necessary for successful entrants. The most important thing, though, is building trust.