Africa’s insurance market remains very small relative to the developed world, with penetration levels falling well short of global averages. The reasons for this are many, and include low per capita incomes, capital inadequacy resulting in low retentions and high demand for reinsurance, lack of capacity and underwriting expertise to underwrite some classes of business, among others.

Speaking on the topic, Director of the South African Centre for Financial Regulation and Inclusion (CENFRI), Anja Smith, recently noted that insurance companies in most African markets have traditionally targeted only the top 5% of the adult population, and this created an obvious opportunity for micro-insurance.

South Africa for example has an untapped micro-insurance market, which provides insurance companies with vast opportunities to sell low-cost insurance products, with estimates saying less than 30% of low-income adults in South Africa have any form of insurance, while in the rest of Africa the untapped market for micro-insurance could be as much as 40% of the adult population.

According to Smith, African insurance markets (excluding South Africa) typically contribute no more than 2% of GDP and serve less than 5% of the population.

“Insurance companies in these markets tend to fight for market share in an already-served market, without looking outward to grow their markets. Experiments and experiences suggest that there is much value to be realised from the low-income market.

“To do this, companies have to realise that insurance policies cannot simply be a low-value replica of what they provide for the higher-income market. They need to be able to address the needs of the low-income market in a unique way. A good understanding is needed of the economic circumstances of the low-income market, the way finances are managed and their overall financial needs. Serious consideration should also be given to the best way to communicate with the targeted market. Marketing and education should go hand in hand,” Smith said.

For companies to extend their reach in the micro-insurance market, they require the development of alternative distribution channels that reach beyond the broker, agent and employment networks, the development of products that fit the profiles and needs of the low-income clients, successful navigation of increasingly complex and uncertain regulatory environments and a fundamental reinvention of the delivery of insurance.

It will be interesting to see if Sub-Saharan Africa’s insurance companies embrace this potential new market, who knows, it could prove to be as successful as micro-finance has been for the firms that saw that opportunity.

Imara is an investment banking and asset management group renowned for its knowledge of African markets.