Insurance companies in Africa have moved to exploit the potential for investment on the continent, with increasing mergers, acquisitions, new laws on increasing capitalisation levels and fundraising for regional expansion.

East African regional insurers Britam, UAP and CIC Insurance are at different stages of fundraising through the Nairobi Securities Exchange, largely to finance expansion.

The PTA reinsurer Zep-Re has attracted new money from Africa Development Bank and German development finance institution DEG, and Continental Re is pursuing a regional expansion strategy, forming subsidiaries across African economic blocs.

Saham Assurance of Morocco has been on expansion spree, with new acquisitions in Kenya and Ghana. Saham bought an undisclosed shareholding in Kenya’s Mercantile Insurance and also in Ghana’s Colina Insurance. Both rebranded to Saham Insurance.

Liberty Holdings of South Africa has also been on an expansion spree, investing in CFC Life and Heritage Insurance in Kenya.

READ: Insurance sector hit by wave of mergers, takeovers

The drivers of the new growth wave are Africa’s growing economies, natural resource discoveries, and the rising middle class.

“Insurance is beginning to take its rightful place in national economic development,” said Dr Feyi Soyewo, chairman of African Insurance Brokers Association. He predicted a 600 per cent increase in insurance uptake in Africa in the next five years.

Insurance penetration in Africa is estimated at about 1 per cent of GDP. South Africa accounts for 80 per cent of all insurance premiums on the continent, according to data from Swiss Re Sigma.

In East Africa, where significant oil and gas resources have been discovered, insurers are looking at the option of co-insuring oil and gas risks because of delays in forming a regional oil and gas insurance pool, even as some of the countries prepare to enter the production phase.

“The alternative is co-insurance to distribute the risks,” Muchemi Ndung’u, chairman of the Association of Insurance Brokers of Kenya (AIBK), told The EastAfrican.

Successful models

“We are talking about very high values for oil and gas. So, we want to take models that have successfully been used in other African countries like Nigeria — having legislation on local content. But, before that, co-insuring is an option. We do not want to reinvent the wheel. A certain percentage of works must be done locally. We are participating as brokers through our representatives at the Insurance Regulatory Authority to ensure a local content policy is formulated,” he added.

Insurers are positioning themselves not only to capitalise on the opportunities presented by oil and gas but also to benefit from the revenues when they start flowing in.

Governments in oil-rich countries are expected to spend more on infrastructure like roads and health facilities, which will in turn lead to improved living standards. People will therefore have more disposable income to buy insurance.

But African insurance and reinsurance companies will need to partner to improve their capacity.

“We are looking at models used in other African countries that have oil, like Ghana and Nigeria. Pooling will not only help companies benefit from premiums but also to understand the new emerging risks,” said Hope Murera, general manager of Zep-Re.

Zep-Re is a member of the West Africa Oil and Gas Pool.

Nigeria and Ghana are fighting off offshore insurance companies through local legislation.

The trend

“The insurance industry in Africa had been haemorrhaging premiums to foreign insurance companies. This trend must stop,” said Dr Soyewo.

Ashok Shah, group chief executive officer of Kenya-based Apollo Investments, said increasing use of information and communication technology has helped insurers in Africa to capture a large, previously under-served population.

“Without relying on intermediaries, consumers can now search, review and purchase simple products like personal accident and travel insurance online. These digital platforms are helping insurers become more consumer-centric and enabling consumers to interact with them anytime, anywhere,” he said.

Digital platforms have become part of customers’ lives, and insurers are adapting to the changes.

“The future is about channels rather than products. Insurance companies use the speed and capacity to modify products to fit the customer,” said George Kuria, head of retail and mass distribution at UAP Insurance.

New insurance models like Takaful and weather-indexed insurance are also seen as key growth drivers.

Hassan Bashir, the CEO of the Kenya-based Takaful Insurance for Africa, said for new models to thrive, there is a need to create conducive regulatory environment.

In the case of index-based weather insurance, the challenge is to commercialise it because there have been instances where farmers do not pay their premiums.

READ: Kenyan pastoralists receive insurance payout for livestock deaths

But there are expectations that products focused on low-income groups will increase.

The growing pool of young people, improved incomes in many African countries and wide use of mobile phones are driving the growth of micro-insurance.

Forced marriage

Some insurance industry leaders now say there is a need for forced mergers in Africa to reduce the high number of companies with low capitalisation that pose a liquidity threat to the industry, and to avoid market failure, which affects consumer confidence.

One of the most common characteristics of insurance markets in most of the African countries is that only a few strong companies control most of the domestic market, with the rest commanding on average a 1 per cent market share. The latter are candidates for statutory management.

“There is a definite need for ‘arranged marriages’ to facilitate mergers and acquisitions in order to build scale within the insurance industry,” said Arnold Ekpe, a former CEO of Ecobank.

“Regulators should ensure that the biggest insurance companies operating in African markets are local, just like in other global markets.”

Israel Kamuzora, CEO of Tanzania Insurance Regulatory Authority (TIRA), said the region’s insurers should be well capitalised.

“Size matters, as you can see with Nigerian companies, which are now expanding into East Africa because they are well capitalised,” he said.