5 Things Insurers Must Consider to Succeed in Africa

The insurance industry is changing the world over, and nowhere is this truer than in Africa. As we touched on in our recent article, conditions across the continent — which has historically been underserved — present insurers with a wealth of opportunities for growth. Steady economic growth in most African countries and increased political stability has positioned the continent as the second-fastest-growing region for insurance globally (after Latin America).

Though it is not evenly distributed throughout the continent, Africa is the eighth-largest insurance market in the world, with a GWP of around $68 billion. However, markets are inconsistent in size and growth, with more than 90% of premiums deriving from just ten countries.

The opportunity for growth is huge. Research shows that insurance premiums are about ten times lower per number of people than the world average. At the same time, the penetration rate in Africa currently stands at approximately 2%.

This article explores some of the most exciting opportunities in the African insurance market. With insights provided by South African based insurance expert Darlington Munhuwani, Quantimetrics CEO Bram Meyerson (who helps financial services companies digitally transform and get value for money from their technology spend), and INSTANDA’s Henry Willis, we explore five things that insurers must consider in taking advantage of these opportunities.

Harnessing the power of mobile banking

Thanks to smartphones' rapid and ubiquitous adoption across Africa, banking and finance are starting to emerge as profitable sectors. Per African Business, mobile phones currently account for around 75% of all internet traffic on the continent. Meanwhile, McKinsey predicts a 10% annual growth rate in the African financial services market, generating $230bn in annual revenues by 2025. With more and more people across the continent now embracing banking services and financial planning (typically via platforms such as WhatsApp), insurance could be a logical next step. As Bram explains, “There’s an opportunity for insurers to access the recently banked population and offer them micro insurance products that are affordable and meet their needs.”

However, as INSTANDA’s Henry Willis points out, “More traditional insurers will need to ensure that they have the technology available to collaborate within the insurance ecosystem.”

Leveraging partnerships

As Darlington observes, “Across Africa, we are seeing a lot of collaboration and partnerships forming between traditional insurers, Insurtechs and other partners.”

“Many insurers,” he continues, “realise that they are burdened by their legacy systems when seeking to bring digital products to market. That’s why we are seeing the formation of more partnerships.”

Insurtechs are seen as friends and not foes as insurers look to tap into existing ecosystems to meet evolving customer needs.

Darlington admits that some insurers have chosen to build their own ecosystems internally but in doing so he shares, “They can’t always move as fast as they want to as they have disparate systems that are firmly locked into various departments, and this can be very hard to move away from.” This is one of the reasons why they look to Insurtechs (like INSTANDA) to drive transformation.

Increasingly, African insurers are tapping into third-party systems and platforms through partnership and collaboration. One example that Bram and Darlington give is of the Nigerian company aYo. aYo recently partnered with mobile network operator MTN to launch a micro health insurance product that offers customers access to telemedicine, consultations, and online screenings.

These types of partnerships are on the rise and “Digitally very advanced,” says Darlington. In many ways, it’s far more advantageous for an insurer to quickly plug into an existing ecosystem to realise a bigger market opportunity than attempting to mimic what a partner is already doing.

As Darlington continues, “Distributing insurance products in Africa is generally very expensive.” This is one of the reasons why embedded insurance is on the rise.

Let’s take WhatsApp as an example. The growth of ePayments through eWallets via WhatsApp has grown exponentially across the continent, and so, “There’s enormous opportunities for insurers to tap into this space through embedded insurance propositions,” explains INSTANDA’s Henry Willis.

Essentially, the partnership approach – whether that’s through social media, embedded insurance or collaboration – offers insurers a route to digitise the journey without having to make significant internal investments to tap into those markets.

Changing operating models

Leveraging a partnership approach does require a change in insurance model. Bram explains, “Insurers that are going to market in Africa are savvy. They’ve done their research and they’re going to market with products where the premiums are acceptable to the customer, and where they know that they’ll get good penetration.”

Moreover, these insurers have changed their operating models. As Bram continues, “They have a back-office model where their costs are lean, particularly their technology costs.” Typically, the technology costs, he shares, “Need to be less than 1% of the gross premium revenue,” and the way that insurers are doing this is by leveraging advances in digital technology, particularly no-code platforms.

The need for a holistic approach

To retain and attract new customers, Darlington mentions that the approach must be holistic. He explains, “This goes beyond pricing, experience and product innovation to tapping into data and technology as the foundational pillars for creating long-lasting competitiveness.”

This also rings true with recruitment. With the war for talent as fierce as it is, Darlington advocates, “Insurers must recognise that to bring in the right skills and make a real difference in this space, they must move away from recruiting exclusively insurance-oriented people and add diverse and complimentary skillsets to enhance the knowledge base and clients’ experience.”

Call for data-driven pricing models

Harnessing automation and drawing on siloed customer data offers insurers a way to develop new pricing models. At present, many insurers are hampered by their internal processes and are required to price risk based on preset tables. Darlington explains, “In some circumstances, insurers can increase premiums if they have the data to qualify a rise,” but he adds, “many insurers are very much bogged down with their internal processes and cannot challenge outdated pricing models.”

Bram points out that AI-powered underwriter workbenches are a good example of the use of tools and data to future-proof insurance businesses. Another example is automated reconciliations that match premiums paid on mobile apps with those on the policy administration system.

The use of machine learning and automation means that insurers can break down silos and structure their data, allowing them to make the connections needed to unlock new insights and better assess pricing. Artificial Intelligence (AI) tools could also help insurers relate to customers through better customer relationship management.

As Darlington mentions, “The integration of all these systems is what we are aiming for as a sweet spot, so that we can reduce friction in customer journeys. We can also reduce the switching costs to customers when they move from one insurer/broker to the other.”

Speaking from experience of working directly with insurers, Henry says, “Insurers often share that it’s a real challenge for them to make all their data accessible, let alone draw actionable insights from it. Much of it is siloed in disparate systems, but then that’s where platforms like INSTANDA can be hugely beneficial.”

The Power of No Code

INSTANDA’s no-code cloud-native policy administration system is an excellent option for insurers looking to rapidly build new products and enter new markets.

As Henry explains, “INSTANDA enables insurers to take an ecosystem approach, which means that they can work on the here and now.”

“Essentially,” he continues, “they can democratise that insurance, bring the capability in house, empower their team and set up a culture of innovation.”

Agreeing with Henry, Darlington mentions, “The biggest advantages of INSTANDA’s policy administration platform are cost and speed to market.” Comparatively, it is far quicker and much more cost-effective for insurers to launch new products through INSTANDA than it is for an insurer to build in house.

Adding to Henry and Darlington’s observations, Bram says, “It’s also a matter of convenience because from an IT perspective, an insurer does not have to have their own data centre or be reliant on on-premise solutions. This reduces the total cost of ownership (TCO) and the technology cost per member or customer.”

In summary, and to use Darlington’s words, “There is a lot more that can be achieved with the right technology, the right focus and the right partnerships,” to ensure that people who need insurance are not left out. “For me,” Henry concludes, “that’s the real value of INSTANDA - making insurance accessible to more people.”

To learn more about how INSTANDA is already helping insurers to increase their foothold in new markets, please contact us for a discussion and demo.