Insurance penetration and boosting economic growth in Africa
Farid Chedid, chairman and CEO of Ascoma Group, discusses the state of the insurance sector in Africa in an interview with Oxford Business Group. He highlights how the insurance sector is helping to boost economic growth on the African continent in the current difficult scenario marked by the coronavirus pandemic.
How did the COVID-19 pandemic affect the insurance sector in Africa?
Government measures to reduce the spread of COVID-19, such as national closures, have resulted in slow economic growth and, in some cases, recession. The performance of the insurance sector is traditionally linked to that of the economy: if the economy grows, so will the insurance sector. Insurance companies have not been able to maintain the same amount of turnover during this period, especially as investment levels have declined. This has put pressure on insurance companies, pushing them to grow their portfolios in the face of the economic slowdown. However, even with these difficulties, many companies have done well, not only because of good management, but because they had invested in ICT infrastructure before the pandemic.
What steps can be taken to increase penetration in sub-Saharan Africa?
Companies are pursuing different strategies to address the challenges inherent in the insurance industry in sub-Saharan Africa. Digitalisation, microinsurance and microfinance are key to boosting penetration in the coming years. Digitalisation is the best and easiest way to distribute products and reach a larger proportion of the population, especially through apps, but not everyone has a smartphone or disposable income. While this makes retail insurance more challenging, digitalisation is the long-term solution. However, in the short term, companies can focus on commercial insurance, as well as working with oil, gas, mining, renewable energy and industrial companies through brokers to provide risk management solutions.
To increase penetration and awareness, brokers need to be helped to promote their products and risk management expertise at the individual, family and company level. Today, products and solutions for health, employee benefits, political violence and cyber risk are much needed. While brokers are sometimes perceived as working against insurance companies, they are in fact important assets in the industry as they promote and distribute products. In fact, what makes the difference between a successful and an unsuccessful market is the cooperation between all players, as is the case with the Inter-African Conference of Insurance Markets, a grouping of 14 countries that share a common insurance code.
Insurance is both an investment and a facilitator of spending. International brokers act as ambassadors, assisting foreign direct investment in each country by providing local knowledge and risk assessment of political, social, economic, legal, environmental and technological situations. Brokers help monitor exposure and transfer the impact of losses to insurers. They can then analyse strategic risks and provide solutions to drive investments.
For example, a family's main source of income must save money in case of illness or sudden death. However, if the individual obtains health and life insurance, he or she will make an investment that will allow him or her to spend a much larger portion of his or her income on daily needs. As such, insurance is an important tool for economic growth. Unfortunately, insurance is not always used in this way. To facilitate a change in mindset, there needs to be greater awareness among the general population about how insurance works and how everyone can benefit from it. This will encourage people to spend and invest more, helping the economy to grow. Awareness campaigns should focus largely on individuals and households, as businesses, in general, already know how to use insurance.
