SA insurers urged to look to African reinsurance brokers for profitable growth prospects

The potential for growth in the African insurance sector is significant. South African insurers are well positioned to leverage their expertise across borders and maximise this robust growth opportunity.

Participating in a recent Insurance Institute of South Africa webinar on the insurance opportunities in Africa, Reinsurance Solutions Intermediary Services (RSIS) Executive Head of Broking, Nicole Lopes, said the insurance penetration rate on the continent was just 2.78% compared with the 7.23% global penetration rate, pointing to the potential for growing the African insurance sector.

"Although the Covid-19 pandemic has placed additional pressure on already strained economies in Africa, significant growth is still predicted in the insurance market. This is especially true of the five primary insurance regions that exist outside of South Africa - a country that harbours the most established insurance market in Africa and currently accounts for around 70% of total market share," Lopes told delegates.

Those untapped insurance regions include the Anglophone countries (0.3% penetration rate); Francophone countries and East Africa (1.2%); North Africa (1.3%); and Southern Africa, excluding South Africa (2.2%).

In detailing the opportunities that existed in these markets, Blessing Chiguye, RSIS Regional Head, explained that certain lines of business were more prevalent in certain markets, giving South African insurers the opportunity to hyperfocus their African expansion efforts.

In East African countries, the predominant focus is non-conventional insurances, with key interests in cyber and aviation insurances; corporate cover; large-scale construction risks; and high-risk accident cover.

The Indian Ocean Island markets include Mauritius and Madagascar. These two countries offer vastly different opportunities: there is scope for marine liabilities; decennial liability/inherent defects liability; cyber insurance; and cover for financial lines in Mauritius, and potential for increased project-linked liability cover, and marine and renewable energy insurances in Madagascar.

The burgeoning markets of West Africa present opportunities for local insurers in cyber; directors and officers (D&O); bankers blanket bond (BBB); aviation; medical malpractice; credit; engineering; decennial liability; and oil and gas (O&G) related covers.

Southern Africa offers prospects for project-driven specialist liabilities; non-conventional insurances such as marine and aviation; financial lines, including D&O, professional indemnity; BBB; and large corporate risks.

Chiguye noted that South African insurers had sufficient capacity, technical assistance, and securities in place to meet demand for cover in these markets.

"There is adequate local capacity for the mainstream business. Since South Africa is the most advanced insurance market in Africa, local underwriters also have much to offer the continent in terms of technical underwriting assistance, particularly on large complex risks, niche covers and emerging risks. From our experience as a reinsurance broker working across the continent, we can also confirm that  South African paper is accepted as security in most markets, except of course where  A - rated paper is required," he explained.

As with any expansion into new markets there are risks. One of the key takeouts of the webinar was that local insurers needed to balance the risk in African insurance markets with the potential rewards.

Barriers to entry include the logistics and costs involved in setting up new offices in foreign territories; having to compete with existing, established players; and the time it takes to get to grips with local market conditions and consumer behaviour.

Chiguye drew on RSIS's extensive African experience in outlining the opportunities for local insurers, specifically the safety net presented by facultative inwards insurance from a reinsurance broker like RSIS for firms new to the markets outside of South Africa.

"The easiest way to navigate this unfamiliar territory is to procure business on a facultative inwards reinsurance basis. This allows insurers to partner with established reinsurance brokers that are already working in these markets and that know the subtle nuances in competitive and consumer behaviour. It also eliminates the need for major in-country operational setups as well as the costs associated with this," Chiguye said.

Co-underwriting between insurers in South Africa and insurers in the African countries they are entering presents another way to access these markets. This allows the South African underwriter to combine its technical expertise  with the local underwriters' distribution channels and  local market knowledge. This enables both insurers to grow a book of business together in what is an obvious win-win for both parties.

Another benefit to working with an established reinsurance broker in Africa is managing issues around foreign currencies and securing payments, often in the face of political and economic instability.

"RSIS has operated in African markets for a long time and has experience in advising our partners on local dynamics, such as issues around payments. For instance, there was a time when reinsurers were concerned about collecting premiums in Angola, but3 we understood the obstacles causing this challenge and knew how to navigate them, and so introduced premium payment terms tailor made for Angola and this specific situation on the ground. It worked, and premium collections remained on track," Chiguye added.

Naturally, foreign companies entering local markets can face some resistance from the local market. In the insurance sector, this could pose a challenge where underwriters try to compete head-to-head with local players. One solution, Chiguye offered, was for South African insurers to simply cover the gaps in local markets, thereby providing solutions to business that was beyond the scope of local insurers to begin with. Such an approach would also ensure less challenges with local regulators on entering the market.

South African insurers looking for aggressive growth prospects would do well to consider Africa's insurance markets. Partnering with a reinsurance broker with an established footprint on the continent enables insurers to leapfrog many of the complexities associated with expanding into Africa while reaping all the benefits offered up by this untapped market.