Africa

Details

  • Industry: Financial Services, Insurance
  • Type: Business and industry issue
  • Date: 8/17/2012

Insurers targeting Africa for growth and margins 

Johannesburg, 16 August 2012 – In its annual review, The South African Insurance Industry Survey 2012, professionals services company KPMG allows 54 of the 164-page document for comment towards reviewing insurance in other African countries.

Why? Partner and National Head of Insurance Gerdus Dixon says, “the South African life and short-term insurance markets are relatively mature, with few obvious merger and acquisition opportunities, it is also ultra competitive, well regulated and, in all likelihood, facing ongoing challenges regarding regulation such as SAM, IFRS Phase II and Treating Customers Fairly.” (see The South African Insurance Industry Survey 2012 media release for more information)

 

Other African countries, however, present insurers with new untapped markets, with massive potential customer populations and burgeoning economic growth, which is forecasted by the International Monetary Fund to be 5.5% this year and next while Nigeria, Ghana and Angola’s growth rates are all in excess of this. In many ways, describing these African countries as the “new frontier” is also no longer accurate, as most of the big players are already out of the blocks, so to speak, and actively positioning themselves for an African play.

 

Leapfrog, Sanlam and Old Mutual to name but a few insurance giants recently announced insurance acquisitions into African markets. Clearly, many challenges to doing business in African still exist, including:

 

  • The short-term insurance market is spread across 55 countries and large-scale business is not present in many of them
  • Due to a surfeit of industry players in some countries, premium is fragmented. This is especially the case in Nigeria and Kenya
  • Distribution channels – insurers will have to embrace modern and alternative models that are able to connect products with insurers in a reliable, cost-effective manner.

 

The extensive African section of the report provides some three to four pages of detail each on 13 African countries highlighted by the insurance team at KPMG as significant to the industry. “Exploring expansion opportunities on a generic African template is not advisable and will probably result in expensive ‘school fees’ for companies if they do,” says Dixon. It is essential that individual African countries are understood and assessed each on their own merits; the incredible diversity and subtle nuances are critical in unlocking the secrets to business success.

 

Dixon also cautions insurers against expecting African countries to provide them with a short-term growth solution. “Africa’s gross domestic product is expected to reach US$2.6 trillion by 2020, but expanding into African countries is not a short-term growth fix, it will take deep pockets and committed sustainable long-term business plans to develop the insurance market in these African countries – particularly the much vaunted retail or individual life insurance markets.” It is important that shareholders understand the return profile of expanding into Africa. Those companies that do unlock the potential stand to benefit from improved margins on products coming from the fastest growing employed population on the planet. There are 500 million people of working age in Africa and the expectation is that this will outnumber China and India by 2040.

 

“The underdeveloped formal economy and infrastructure will demand that innovative solutions need to be found with regard to strategy, product design and distribution. “The barriers to entry are high, but Africa is simply too big and growing too fast for insurers to ignore,” concludes Dixon.

 

Download the full survey report.


 

 

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Contact

Contact
Gerdus Dixon
Director, Financial Services
Tel: +27 (0)82 492 8786
gerdus.dixon@kpmg.co.za