Growing sub-Saharan market to lift demand for insurance services

08 June 2016 6 min. read

Growth has been swift in sub-Saharan Africa as macroeconomic conditions improve and population growth remains strong. A new report finds that the insurance market in the region is set to expand significantly in the coming years on the back of continued growth, changing demographics and improved financial means – with strong demand for non-life insurance in particular.

In the report titled 'Waves of change: revisited Insurance opportunities in Sub-Saharan Africa’, experts from EY explore the changing dynamics within the sub-Saharan insurance market. The study looks at a range of features affecting individual markets, including Kenya, Malawi, Tanzania, Uganda, and Zambia in the east, and Ghana and Nigeria in the west. The survey involved 125 insurance executives and regulators across the region, with interviews conducted to gain information, analysis and actionable insights from key executives.

GDP and population growth

The sub-Saharan African region has enjoyed strong growth in recent years. Zambia saw 11% GDP growth in 2015, while Malawi grew by 10%. Kenya and Tanzania both enjoyed growth of 9%, while Uganda, Ghana and Nigeria had growth of 6%, 4% and 4% respectively. The continent is being buoyed by a range of factors, including productivity improvements, urbanisation, higher value exports investments in giant infrastructure projects, and mobile technologies to boost trade and commerce.

Going forward, confidence on Africa's economic potential remains high among executives, according to a recent analysis by FTI Consulting, delivered ahead of the World Economic Forum’s 2016 African summit in Kigali, Rwanda.

Sub-Saharan Africa has also seen significant growth in terms of population. Nigeria has grown by 50 million people between 2000 and 2013, while Tanzania is up 15 million in the same timeframe. Zambia’s population grew by 50% between 2000 and 2013, while Uganda was up from 24 million to 38 million. The consultancy notes that there is also an increasing trend towards urbanisation on the continent.

Key drivers of premium growth

Insurance industry
According to 41% of respondents, the effect of economic growth is broadly positive on the growth of the insurance industry in the region over the coming 12-18 months. 24% believe that product innovation will improve premiums, while 15% cited changes in regulation. Increasing population levels, as well as urbanisation that sees the traditional family unit breakdown – and with it a loss of family as an alternative insurance model – will further spark a demand increase. 

As it stands the insurance market in sub-Saharan Africa is relatively underserved. In terms of insurance premiums per capita in 2014, South Africa – which, according to McKinsey, faces five key economic challenges – is far ahead at $925, while, in comparison, Thailand comes in at $323. The rest of the sub-Saharan region has relatively low premiums per capita, with Kenya highest at $39, Zambia at $18, Ghana at $15 and Nigeria at $10.

Kenya has the highest insurance premium as a % of GDP at around 3%, with 1.9% invested in non-life insurance while 1.04% is invested in life insurance. Malawi comes in second with 1.08% non-life and 0.39% life. Nigeria has the lowest proportion of GDP going to insurance at 0.23% non-life and 0.08% life.

Projected insurance market growth and segment growth

The research highlights that favourable economic and demographic conditions will mean that considerable growth is projected for the African market. The Zambia insurance market for instance is projected to see annual average nominal growth of 11%, while Nigeria will see growth of 10%. Ghana will see 9% growth while Uganda will grow by 8%. Kenya, with its relatively developed market will see growth of 6%.

In terms of market segment growth, non-life insurance tends to outperform life insurance growth. Particularly Uganda, Malawi and Tanzania will see strong growth in the non-life segment at 88%, 78% and 88% respectively. Ghana is projected to see the largest life insurance growth to 46% of the total market share of insurance.

Estimated share of gross written premiums by distribution channels

The research also points out that different types of distribution channels will see different shares of the gross written premiums. In Zambia brokerages are the top performers at 39%, followed by agents at 17%. In Tanzania brokerages account for 28% of gross written premiums, while direct mail delivers 22%. Malawi has the lowest level of brokerage action at 22%, with agents the largest channel at 25%, while bancassurance comes in at 17%.

Steve Osei-Mensah, East and Central Africa Financial Services Advisory Leader at EY, says: “Significant population growth, rapidly rising incomes and the relatively low penetration of insurance products suggest great potential for both life and non-life products in Sub-Saharan Africa. There are also openings for insurers to introduce innovations in motor insurance, end-to-end mobile insurance purchases, consumer education and fraud prevention. While insurers will need to address challenges involving talent, market volatility, regulation and technological capacity, among others, there are opportunities for growth in the region."

A recent report from the EIU found that Islamic finances is set to face a massive demand boom in Africa.