The opportunities for growth in Africa’s insurance industry are huge despite recent economic and political uncertainty. The insurance industry has done well to adapt to continuous disruption, with technological advances now considered the most important global trend disrupting the industry. Despite the additional pressures of unrelenting regulatory and insurance accounting changes, and the huge costs associated with the changes, there are also some positive developments and opportunities for growth.

These are some of the key highlights from a report issued by PwC (PwC.com) today on Africa’s insurance industry. PwC’s report – ‘Ready and Willing: African insurance industry poised for growth’ – comes at a time when economies on the African continent are starting to show signs of real growth on the back of recovering global commodity prices.

Victor Muguto, Long-term Insurance Leader for PwC Africa says: “The insurance industry across Africa continues to be one of the most disrupted, but at the same time the industry continues to innovate and adapt to take advantage of the many opportunities for growth that are also emerging.

“In the years following the global financial crisis, economic and political uncertainty across the continent slowed down economic and insurance sector growth. Despite this, Africa’s insurance market remains one of the least penetrated in the world and the opportunities for growth are tremendous.”

Top trends driving change in Africa’s insurance markets

Africa’s insurance industry is facing more disruption than any other industry, posing challenges for some while opening up business opportunities for others. The pace of change in the insurance industry has taken place more rapidly than originally anticipated and will accelerate further. 

“Leading insurers are already implementing key strategies to focus on new customer behaviours and demographic shifts. The need to be agile in the face of a rapidly changing technological environment has never been more vital,” says Pieter Crafford, Financial Services Advisory Leader for PwC South Africa.

The survey identifies four main themes that are transforming the African insurance industry:

Technology and data ‘revolution’: Technology and data are now considered the most important global trend disrupting the industry, but they are also increasingly being used by the industry to accelerate growth. Across all of Africa, the increased use of technology, on the back of the exponential growth of mobile phones, has significantly contributed to the large amount of new customers and more tailored products. Technology presents insurers with powerful tools to better understand customer needs and expectations through data mining capabilities and artificial intelligence (AI).

However, it is expensive and not always easy for insurers to “go it alone”. Consequently, some insurers have formed partnerships with technology companies to improve operational efficiency and respond quickly to changing customer expectations. Technology, specifically mobile phones, social media, and data analytics are seen as the top enablers to increase access to new customers, at reduced cost and to analyse behavioural data, in order to design new, more appropriate products.

Regulatory and accounting changes: Behind technology, insurers also identified stringent risk based prudential capital and market conduct regulations as the second most disruptive issue. By now, most insurers are used to regulations and this has become “business as usual”. Insurers across the African continent have embraced the regulatory changes, and are ready and willing to comply with new legislation and regulations. But, while most insurers have adopted new ways of compliance, the introduction of IFRS 17 is also expected to add new pressure.

It is also positive to note that that the intensity of regulatory concerns is reducing among insurers. Fewer survey respondents (2017:61%) had concerns about the burden of regulation dampening risk appetite and stifling growth compared to 90% of respondents in 2014. Although the unrelenting regulatory changes come with increased costs and implementation challenges, they also present hidden opportunities for insurers to better manage risk, and allocate capital more appropriately. Some of the new regulations are expected to prompt insurers to redesign simpler and more appropriate products for customers. For example, the less onerous regulatory capital and conduct regulations being introduced by the pending Microinsurance framework in South Africa offer alternatives to reduce the costs of insurance at the lower end of the market

Convergence, the new “Scramble” for Africa’s customers: Changing demographics and social changes, in particular the rise of a middle class, are driving insurers, bankers, and non-traditional players such as retailers and mobile operators to compete for the power of owning customers and customer information. We have started to see a convergence of insurers and bankers around customers. While most of the major banks have had insurance operations for years, there has been a renewed interest by other banks to also start insurance operations. Likewise, some insurers are setting up separate banking operations, and mobile phone operations and retailers are pushing in. All of this is with the aim of owning more customers and cross selling various products to them.

In addition, insurers are also adopting multichannel distribution strategies and taking more direct ownership of their customer data and relationships. They are designing simpler products leaning towards technology based direct mobile and online channels of distribution. While the more complex products will still require intermediation, the use of brokers may gradually reduce as insurers invest in their own in-house channels.

Talent shortages – workforce of the future: Insurers also highlighted talent shortages as a top issue in our survey. This is notable in the areas of technology and actuarial skills. In order to attract and retain talent, insurers need to invest more in training their “workforce of the future”. Alongside this, employee expectations are changing. Employees of the future expect better work-life balance. The majority of insurers surveyed are already prepared for change, with 83% of survey respondents indicating that they either had prepared or were moderately prepared to establish a more flexible working culture to support employee work-life balance.

Insurers should not only be thinking about or investing in a workforce of the future. They should also start thinking about jobs that may not yet exist.

While the African insurance industry is going through significant change and client expectations are changing the rise of the new middle class and digital natives offers new opportunities for insurers, using technology, to better understand their customers and use customer data for more relevant product design and better pricing for risk. Insurers need to ensure that they can do so while navigating increasing regulatory compliance issues, overhauling legacy IT systems, and investing in a workforce of the future. Operational procedures and business structures will also need to be updated to become more efficient.

“Insurers across Africa face exciting new opportunities for growth on the back of a rising middle class and increased demand for new and innovative solutions. Most insurers know what to do - the winners will be those that are best at execution,” Crafford says. 

“Insurers, who are client-centric, innovative, technologically up-to-date, and who invest in a workforce of the future, will lead the charge to increase insurance penetration levels in Africa,” Muguto concludes.