MRoA/MMRC Munich Re Group 36 th AIO Annual Conference Dar Es Salaam, Tanzania May 2009 Challenges of Access to Insurance Services in Africa Junior Ngulube

MRoA/MMRCMunich Re Group

36th AIO Annual ConferenceDar Es Salaam, Tanzania May 2009

Challenges of Access to Insurance Services in Africa

Junior Ngulube

2


Challenges of Access to Insurance Services in AfricaFraming the Challenges

“……when you are a hammer, every problem is a nail…!”

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Insurance Penetration in Africa is Relatively Low

4



0

10 000

20 000

30 000

40 000

Wor

ld

North

America

Wes

tern

Eur

ope

Japa

n/AUS/N

Z

Emer

ging

Asia

Easte

rn E

urop

e

Latin

Amer

icaAfri

ca

0.0 1.0 2.0 3.0 4.0 5.0 6.0

World

North America

Western Europe

Japan/AUS/NZ

Emerging Asia

Eastern Europe

Latin America

Africa

Non-life Life

Per-capita income (2006, US$) Insurance market penetration (2006, in %)

Low per-capita income and market penetration

Penetration much lower if South

Africa is excluded (NL: 0.82, L: 0.33)

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Classification of insurance markets according to their state of development (Life)

Criteria

1. Life insurance penetration and density (premium per capita)

2. Consumers: Wealth, savings rate, family structures, awareness

3. Products: Range, complexity, flexibility, innovations, investment products

4. Distribution: Types and market shares of sales channels, mix, quality of agents and sales process

5. Supervision: Insurance law, supervisory authority (independence, resources, quality of data, models, instruments), practical effectivenesss and efficiency

6. Capital markets: Development and use of stocks markets, degree of integration of financial services, modern financial instruments

7. Technology available in the market (either internal or external)

8. Risk management:: Underwriting, claims management, experience studies or industry surveys, asset liability management, etc.

9. Companies‘ organisation: Legal forms, structure, management

10. Expertise and experience available in the market

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Super mature

Challenges of Access to Insurance Services in AfricaState of Development of Insurance Markets (Life)

Mature Transitional Emerging

Source: Munich Re

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Wealth Drives Insurance Penetration

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Challenges of Access to Insurance Services Relationship between wealth and insurance penetration

There is a positive relationship between wealth (measured as gross national income per capita in purchasing power parities) and a country’s insurance penetration

Higher wealth tends to result in a rising penetration in life as well as in non-life insurance (i.e. the insurance market is growing faster than the overall economy)

In general, the increase is stronger in emerging markets than in industrialized countries

Wealth alone does not explain the state of a country’s life insurance market. Other causes are differences in life insurance market environments across countries (e.g. degree of old-age pension systems being based on social security).

Based on the overall global trend, growth potential in life business in general exists in emerging markets (catching up) as well as in industrialized countries (reform of social security systems, ageing society)

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10.04.23Life5.1.2 Life insurance markets and competitors research, Heike Wengert, 2007

Relationship between economic wealth and life insurance penetration

Global trend line

Gross national income per capita (in PPP-US$)

Data: year 2005

Pen

etra

tion

in %

Emerging Markets

Industrialized Countries

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Relationship between economic wealth and Non-life insurance penetration

Non-life penetration (premiums in % of GDP) and per-capita income 2004

BrazilJapan

Poland

PortugalSouth Africa

Spain

Tunisia

United States

China

Czech Republic

France

Germany

Korea

Morocco

Singapore

Sudan

Turkey

Angola

Ethiopia

Kenya Mauritius

MozambiqueNigeria

Tanzania

Zambia

0

1

2

3

4

5

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000

GNI per capita in purchasing power parities (PPP-US$)

Pe

ne

tra

tio

n N

on

-lif

e (

%)

Global trend line

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Growth in Insurance Penetration

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Some African countries fall in the category of

Emerging Markets with high growth potential

Non-Life: Expected average real growth 2004 - 2010 and penetration 2010(G7 countries not included in global averages)

Angola

Zambia

Tanzania

Sudan

Nigeria

New Zealand

Mozambique

Mauritius

Kenya

Ethiopia

Cameroon

Turkey

Taiwan

Switzerland

South Africa

Singapore

Russia

Norway

MexicoKorea

Israel

India

Chile

Brazil

Australia

Argentina

CanadaFrance

GermanyItaly

JapanUnited Kingdom

United States

China

-2

-1

0

1

2

3

-2 -1 0 1 2 3

NL real growth until 2010 greater than average (in std.dev.)

NL real growth until 2010 smaller

than average (in std. dev.)

Penetration in 2010

higher than average

(in std. dev.)

Penetration in 2010

lower than average

(in std. dev.)

Note: Size of bubble relates to

insurance market size in 2010

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Non-life premiums outgrow economic growth in line with rising per capita income (= wealth)

Non-Life: average real growth 1994 - 2004 and current penetration

Sudan

Nigeria

Mauritius

Kenya

United StatesUnited Kingdom

United Arab Emirates

Turkey

Taiwan

Switzerland

South AfricaSlovenia

Russia

Portugal

Poland

Philippines

NetherlandsMoroccoMexico

Malaysia Luxembourg

Korea

Italy

IrelandIndia

Hungary

Hong Kong

Greece

France

Finland

Brazil

Austria

Argentina

Germany

Japan

China

-2

-1

0

1

2

-2 -1 0 1 2 3

NL real growth 94-04 greater


NL real growth 94-04 smaller than

average (in std. dev.)

Current penetration higher


Current penetration

lower than average

(in std. dev.)

Note: Size of bubble relates to

insurance market size

Insurance marketdevelopment path

„Poor Fellows" „Advanced Losers"

„Advanced Growth Markets"„Typical Emerging Markets"

Saudi Arabia

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Is the Challenge Access to Insurance Services in Africa or Wealth?

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Wealth in Africa

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Wealth and Insurance Penetration in AfricaTop 10 Countries

County GDP(USD Billion)

Market Size (USD Billion)

Penetration%

Per Capita Income (USD)

Equatorial Guinea 10.30 0.002 0.04% 21041

Libya 66.20 0.17 0.31% 9022

Gabon 10.20 0.106 1.04% 6856

Botswana 11.90 0.372 3.905 6187

Mauritius 7.40 0.32 4.93% 5686

South Africa 282.00 24.678 8.75% 5372

Algeria 134.00 0.776 0.59% 3881

Tunisia 35.00 0.68 1.94% 3410

Cape Verde 1.60 0.022 1.38 2919

Namibia 6.60 0.454 7.96% 2842

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Wealth and Insurance Penetration in AfricaBottom 5 Countries

County GDP(USD

Billion)

Market Size (USD Billion)

Penetration%

Per Capita Income (USD)

Tanzania 14.3 0.123 0.86% 299

Niger 3.5 0.022 0.59% 247

Malawi 2.4 0.063 2.61% 166

Ethiopia 13.3 0.097 0.88% 149

Dem Rep of Congo 8.9 0.016 0.23% 124

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Access to Insurance for Low Income Groups

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Challenges of Access to Insurance Services in AfricaNeed for Insurance Among Low Income Groups

Asset protection and life insurance low in priority

Top priorities: food, shelter, clothing, medicine, provision for funerals,

education

Perception of risk centres on loss of a job, loss of an income provider,

disease or death

Least important perception of risk concerns things that can be replaced

e.g. assets

Asset ownership in this sector is low or assets low in value

Even when available, money is fungible leading to skipped premiums

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Challenges of Access to Insurance Services in AfricaSupply of Insurance to Low Income Groups

This market generally not targeted – insurance is sold not bought and

even when bought, it’s a grudge purchase

Existing insurance products designed for commercial and higher

income groups

Experience of the product may have been poor (repudiated claims,

complexity, policy language or just bad service)

High friction costs in the value chain: premium collection, claims

handling, large number of policyholders against low premium volumes

Lack of property rights and legal ownership of assets renders them

“dead capital” that cannot be traded and hence not insured

Intermediation replaced by “tick-the-box” intermediation with no

explanation of the product or terms and conditions

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Challenges of Access to Insurance Services in AfricaCompetition to Insurance Solutions - Coping

Self-insurance

Extended family support especially in rural areas

Accrual of social capital as an investment

Borrowing from relatives, employers and even money lenders

Looking for alternative “livelihood” opportunities

Distress selling of assets like livestock and other property

Distress migration - to urban areas or even other countries

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Challenges of Access to Insurance Services in AfricaThe South African Example

Access to Insurance for Low Income People

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Financial Sector Charter


Framework and principles upon which BEE will be implemented in

the Financial Sector

Charter Committed Financial Institutions to transform in :

Human Resources development

Procurement of goods and services

Access to financial services

Empowerment financing

Ownership and control

Corporate social investment

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3. Access to Financial Services

3.1 Transactions savings, products and services

3.2 Bank savings, products and services

3.3 Life assurance products and services

3.4 Collective investments products and services

3.5 Short-Term risk insurance products

3.6 Origination of : Home Loans

Agricultural Loans

SME Loans

3.7 Consumer education

Target

LSM 1 – 5

LSM 1 – 5

LSM 1 – 5

LSM 1 – 5

LSM 1 – 5

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Financial Sector CharterAnnual Review – The FSC 2007

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Challenges of Access to Insurance Services in AfricaConclusion

Wealth drives insurance penetration and eases access

Low income or poor communities have evolved COPING

mechanisms to address their exposure to risk

Where there is a FELT NEED, financial services will be consumed

even by low income groups

Replaceable assets rank lowly in priority regarding perception of

risk, made worse by their untradeable status

In the case of South Africa, banking and life insurance have had

better success than non-life insurance

A sustained and concerted effort is called for to achieve penetration

in low income groups even where there is a FELT NEED.


Thank you for your attention

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Diversified structure – Diversified riskMunich Re Group

The above is a selection of companies operating in the relevant field of business.

Reinsurance

Munich Re Group

Primary insuranceMunich Health

Asset management

Salute

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Strong growth in life insurance worldwide

Gross life and non-life insurance premiums worldwide in US$ bn

*CAGR = inflation-adjusted compound annual growth rate 1996 – 2005.Source: MR Economic Research.

US$ bnCAGR*`97-`06

Life 4.3%

Non-Life

3.0%

GDP 3.1%

In last the last 25 years global life insurance has grown stronger on the average than non-life insurance and the overall economy.

Growth `06

4.6%

3.2%

3.9%

0

500

1,000

1,500

2,000

1970 1975 1980 1985 1990 1995 2000 2005

LifeNon-Life

32


Rising importance of life insurance in the global economy

0

1

2

3

4

5

1970 1975 1980 1985 1990 1995 2000 2005

Global life insurance penetration (GWP in % of GDP worldwide)

Long-term trend

From 1980 up to 2000 global penetration rose fast. Growing wealth leads to higher saving rates and higher demand for risk protection (Maslow‘s hierarchy

of needs) + other favourite framework conditions.

Global average of

4.1% in 2006

%

■

Source: MR Economic Research.

2006

Documents

MRoA/MMRC Munich Re Group 36 th AIO Annual Conference Dar Es Salaam, Tanzania May 2009 Challenges of Access to Insurance Services in Africa Junior Ngulube