Five reasons to be upbeat about Africa’s insurance industry

For many decades Africa was known for its oil, gas and mineral potential. This is still true in the 21st century but it’s not the only African reality. The steadily rising middle class has helped boost internal consumption.

Because insurance is a relatively unknown industry in many African countries, this article aims to highlight five realities supporting the idea of a booming African insurance market.

1. A low insurance penetration rate means high growth potential

Insurance experts and practitioners from around the world see a low insurance penetration rate (insurance market size/GDP) as a sign of high growth potential in the industry. According to Swiss Re, Africa’s insurance penetration rate stood at 3.5% in 2013 versus 6.28% globally, while the market recorded a growth rate of 10.2% versus 2.5% worldwide.

2. Growing investment from international and regional insurers

Africa’s most attractive insurance markets have seen the entry of foreign players that generally create their subsidiaries from scratch, or simply acquire an existing local player. Kenya, Ghana and Nigeria have been preferred targets for foreign insurers. An example is British insurer Prudential that acquired Kenya’s Shield Assurance in 2014 as well as local Ghanaian firm Express Life in late 2013.

African-based companies have also made investments in other countries on the continent. Last year Morocco’s Saham Group bought a 40% stake in Nigeria’s Unitrust Insurance, while in the same year South Africa’s Sanlam secured a shareholding in Oasis Insurance, also based in Nigeria.

3. Multinational investors require insurance products

Multinational firms investing in Africa are cautious about risks threatening their activity in an environment characterised by weak infrastructure and political instability. This is boosting commercial insurance in countries like South Africa, Nigeria, Kenya, Ghana, Morocco and Angola. The entry of multinationals has driven local insurance firms into developing tailored and sophisticated products like political risk coverage and agricultural insurance schemes.

4. Growing awareness of the importance of insuring against natural disasters

Africans are increasingly aware of the importance of insuring their assets against natural hazards. The impact of natural hazards is disastrous for African economies with weak infrastructure, which is why governments and international organisations (such as the World Bank) are launching transnational reinsurance pools and insurance programmes in order to help insurers cover these kinds of risks.

5. Regulatory changes could benefit insurers

In several African countries many insurance policies are not mandatory and/or enforced by the law as is the case in Europe and the US. Insurance companies see opportunity for growth once some products are made mandatory following lobbying manoeuvres executed by insurers’ associations.

As an example, only 15% of Nigerian vehicles (2.5 million) are insured. This is due to the presence of fake agents selling false policies in a country well known for a lack of enforcing its laws. The Nigerian Insurance Association is now trying to change the situation.

Elmehdi Amid is a senior analyst at Infomineo.

Infomineo is a business research company, focusing on Africa and the Middle East. The company provides its clients, including the majority of the leading global management consulting firms and several Fortune Global 500 companies, with ad hoc data on countries, markets, companies and people gathered through primary and secondary research. For more information please contact [email protected] or visit