Africa: Is InsurTech key to boosting insurance uptake?

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  • Insurance penetration in the continent is less than 3 per cent, and if you take out South Africa the coverage drops to 1.2 per cent
  • With the African middle class growing across many African nations, the target market for insurance products is growing
  • Over the past few years, many traditional insurers have realised the urgent need to modernise and scale up their technological setup by offering a more comprehensive digital experience

Africa InsureTech

Insurance in Africa remains a marginal product, with the continent registering significantly lower penetration levels compared to the global average. 

According to a report by McKinsey, insurance penetration in the continent is less than 3 per cent; and if you take out South Africa the coverage drops to 1.2 per cent. 

However, economic growth and the rapid expansion of digital and mobile services are set to change this. 

With the African middle class growing across many African nations, the target market for insurance products is growing.

The report highlighted that there has been a significant rise in demand for digital solutions, as smartphone and affordable internet penetration deepens across the continent, providing opportunities for InsurTechs to step in and offer innovative products.

“Competition among players has already led to significant innovation and disruption in the African insurance market, with insurers leveraging technology to target specific segments or services and cut costs,” the report stated. 

“Innovative partnerships between insurers and online platforms are also becoming more commonplace. We expect this trend to accelerate. In some instances, African countries may even leapfrog more developed markets.” 

Over the past few years, many traditional insurers have realised the urgent need to modernise and scale up their technological setup by offering a more comprehensive digital experience.

The McKinsey report further indicates that individuals across the continent expect to use digital channels to carry out their day-to-day activities such as mobile payments, more so in the post-pandemic world. 

“56 per cent of Nigerians expect to use online banking more and 51 per cent of Kenyans say they will use mobile more in the future,” the report stated. 

To this effect, innovative products launching across the continent appear to be more customer-centric, allowing micro-payments, flexible sign-ups and access to a wide range of services through mobile phones.

Risk & Resilience Assistant Director at FSD Africa Thomas Wiechers said that there is a great opportunity for new start-up InsurTech firms to disrupt the industry. This he said is in part due to their lack of legacy systems that add to administrative complexity and costs.

He however noted that the firms will also face a number of challenges.

“Regulatory hurdles, including capital requirements or qualification requirements for senior management, for the establishment of new insurance companies, are discouraging InsurTech in some markets,” he said.

Read: New ecosystem to disrupt Kenya’s insurance sector

Africa’s budding InsurTech Space

Despite the uncertainties and slow-down brought about by the Covid-19 pandemic, the combination of a burgeoning innovation ecosystem across the insurance sector, an increasingly confident regulatory network and solid economic growth are all contributing to a strong outlook for insurance across the continent. 

According to the McKinsey report, the continent has a potential insurance market value of $68billion in terms of gross written premiums. 

Currently, South Africa accounts for about 80 per cent of gross written premiums across the continent. 

The past two years have seen an increase in investment in InsurTech firms as both continental and global investors look to tap into the African insurance market. 

Lami Technologies founder Jihan Abbass with Bluewave founder Adelaide Odhiambo. [Photo/Lami Technologies]
A number of firms are working to use technology to drive up insurance penetration including Kenyan InsurTech startup Lami Technologies. 

Last week, the firm acquired Bluewave Insurance Agency- another Kenyan startup for an undisclosed amount.

The deal has opened up new markets for Lami in Malawi and the Democratic Republic of Congo (DRC), where Bluewave already has operations as it seeks to make insurance covers accessible to more people across Africa.

Lami is looking to capitalise on Bluewave’s online platform that allows clients to access micro-insurance products through diverse channels, including USSD, SMS, WhatsApp chatbots and web applications.

In the same week, Nigeria’s Casava raised a US$4 million pre-seed round of funding, the largest pre-seed financing for an African InsurTech company. 

The digital insurance platform currently provides cover for health and job loss.

The funding will go towards supporting more product launches from life and travel insurance to home and smartphone insurance. 

“We have delivery, insurance, logistics insurance, I mean, it’s fascinating what we’re doing and the idea is that it’s one subscription with flexible payment options,” Cassava founder and CEO Bode Pedro said. 

South Africa-based Pineapple is another growing InsurTech that offers mobile-based services reducing paperwork and the need for office visits to sign up or process claims, aligning itself with the fast-changing customer behaviour. 

The firm, which recently extended its range of services to include car insurance, now provides its customers full-fledged insurance coverage- all underwritten by Old Mutual.

Insurtech opportunities in sectors such as agriculture are also developing, with startups such as Oko, which operates in Mali and Uganda, providing automated insurance products based on satellite data and mobile payments. 

The startup, which raised US$1.2 million early last year, de-risks farmers affected by extreme weather events like drought and floods.

Read: It is high time insurance firms embraced technology

Kanyali Cynthia is a Kenyan-based financial journalist with key specialisation in data and tech reporting and over eight years of experience.

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