A new survey has placed Zambia ahead of Nigeria in terms of growth potentials in the Sub-Saharan Africa.
The survey found that Zambia ranks first in Sub-Saharan Africa in growth opportunity among insurers, followed by Nigeria, Ghana and Kenya.
Ghana offers the least amount of risk, followed by Zambia and Kenya. Nigeria, the continent’s largest economy, ranks seventh in the level of risk posed to insurers.
Insurance operators and regulators in the region sees Zambia, Ghana and Kenya as better placed to offer the most attractive mix of reward and risk for insurers over the next three years.
But other markets which include Nigeria are also expected to present new opportunities due to their sustainable economic expansion and demographic transformation, according to an E&Y report entitled Waves Of Change: Revisited – Insurance Opportunities In Sub-Saharan Africa.
The report, based on a survey of 125 insurance executives and regulators in the Sub-Saharan region, evaluated growth opportunities for insurance premiums and risk potential in seven key English-speaking markets in East and West Africa, including Ghana, Kenya, Malawi, Nigeria, Tanzania, Uganda and Zambia.
The report noted: “In some markets, an abundance of under-capitalised companies leads to excessive competition around price, rather than service, a situation that could erode consumer trust. Heightened regulatory scrutiny and an increased level of M&A can help alleviate this problem and address the issue of price undercutting.
Finding adequate reinsurance, combatting fraud and anticipating macro-economic instability are also part of the business landscape.”
It explained that consolidation in the marketplace is necessary in order to build confidence among consumers because the presence of financially weak carriers erodes trust, especially if they are unable to pay valid claims.
However, Ernst & Young warned that regulators may acknowledge the need for further consolidation, but may not always be willing to let foreign insurers control majority shares.
Steve Osei-Mensah, East and Central Africa Financial Services Advisory Leader at EY, said: “Significant population growth, rapidly rising incomes and the relatively low penetration of insurance products suggests 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.”
Despite lower oil and agricultural commodity prices and economic slowdowns in other parts of the world, the Sub-Saharan region’s economic outlook remains strong, the report said.
Forty-one percent of insurance executives and regulators surveyed believe GDP growth is the most important driver of future premium growth in the region.
Product innovation (22%), regulatory changes (15%), competition (11%) and technological changes (10%) are other key drivers of premium growth.
The report also examined individual markets and noted that in 2014, Kenya generated insurance premiums of $1.8bn (the largest in Sub-Saharan Africa outside of South Africa).
The report forecasts that Kenya’s insurance market will grow to $2.2bn by 2018. Non-life insurers dominate the Kenyan market and collect two-thirds of total premiums, said Ernst & Young.
Nearly half of non-life covers are generated from motor insurance, and almost another quarter comes from health. Respondents from Kenya viewed regulatory changes and mobile underwriting platforms as potential growth drivers in the coming years.
The report pointed out that Tanzania’s insurance market is relatively young and small with just $300m in premiums annually, reaching around $400m by 2018.
Ernst & Young said that many observers hope the central bank will legalise the bancassurance model to increase premium growth and insurance penetration.
Premium volumes were $200m in 2014 in Uganda, and the insurance market is expected to grow at 8.2 percent annually through 2018.
The report noted that the Insurance Regulatory Authority (IRA) of Uganda which supervises the insurance industry is attempting to cut red tape.
In Nigeria, the report said growth prospects are robust but so are the risks. The insurance market is predicted to grow at 10 percent annually from 2014 to 2018, reaching $2.6bn annually in premiums, up from $1.8bn last year.
Malawi has a very small insurance market with estimated premiums in 2014 of just $100m, but a strong growth rate of 7.7% annually from 2014 to 2018 is projected.
As for Zambia, the report noted that while the insurance market is relatively small, totalling $300m in premiums as of 2014, growth is expected to exceed 11 percent per year to 2018- the highest rate of the seven countries in the study.
And for Ghana, the research predicted 8.5 percent annual growth for the insurance market between 2014 and 2018, expanding from $400m to $600m.
Rohan Sachdev, Global Insurance Emerging Markets Leader at EY, commented: “Insurance executives have reason to be optimistic about these markets.
As a greater percentage of the population moves to urban areas and gains affluence, insurance purchases to cover healthcare and items such as cars are more likely. The Sub-Saharan economies are among the world’s fastest growing, and foreign investors are recognizing the opportunities these markets present.”