Waves of change: revisited

Transcription

1 Waves of change: revisited Insurance opportunities in Sub-Saharan Africa December 2015

2 Contents Foreword...1 Executive summary Growth...4 What s driving insurance growth in Africa? Seizing the growth opportunities 2. Challenges Risks...16 A wide range of risks requires robust mitigation strategies 4. Innovation A matrix of risk and opportunity Country insights...29 Conclusion...45 EY Africa insurance team...47

3 Forward 1 We asked a series of questions to ascertain what is powering the growth of the insurance sector and 1

4

5 Sub-Saharan Africa is a diverse region that presents risks, challenges and opportunities for the countries. This report shares insight into seven countries, each with different growth prospects and most advanced of the insurance markets studied. Growth Challenges Risks Innovation 3

6 1 Growth What s driving insurance growth in Africa? The number of people who are earning more money than they spend, and have disposable income is growing rapidly. 4 Growth

7 1 markets presenting a market opportunity for growth widespread consensus that a rising tide comprising good opportunities for growth in the sector Growth 5

8 1. Positive GDP growth across markets Figure 1: Key drivers of premium growth What will be the key drivers for overall growth in gross written premiums for your company over the next months? Top ranked responses 45% 35% 3 25% 15% 1 5% 41% GDP growth 22% Product innovation 15% Regulatory changes Zambia 11% 11% 1 Competition Technological changes Malawi Kenya Tanzania 1 9% 9% Uganda 6% Ghana Nigeria 4% 4% 2% 4% 6% 8% 1 12% Source: Oxford Economics 6 Growth

9 2. Low insurance penetration South Africa Thailand India $323 $55 $925 Zambia Nigeria 11% 1 Kenya $39 Ghana 9% Vietnam Zambia Ghana $28 $18 $15 Uganda Tanzania 8% 8% Nigeria Tanzania Malawi $10 $6 $5 Malawi Kenya 6% 8% Uganda $5 2% 4% 6% 8% 1 12% $0 $200 $400 $600 $800 $1,000 Source: Swiss Re, Oxford Economics US$ Source: Oxford Economics % annual average US$ nominal growth Kenya % Kenya 65% 35% Malawi 1.08% 0.39% Zambia Ghana 7 54% 3 46% Zambia Ghana 0.78% 0.54% 0.34% 0.48% Nigeria Tanzania Malawi 74% 88% 78% 26% 12% 22% Tanzania 0.79% 0.11% Uganda 88% 12% Uganda 0.59% 0.09% Source: Swiss Re Non-life Life Nigeria 0.23% 0.08% Source: Swiss Re Non-life Life Growth 7

10 3. Rapidly growing populations Zambia Malawi Ghana Uganda Kenya Tanzania Nigeria working-age population will exceed that from the rest of the world combined. 4. Rising consumer demand See Consumer demand Regulatory changes Competition Technological changes GDP growth Consumer demand GDP growth Technological changes Consumer demand Consumer demand Competition Regulatory changes Technological changes GDP growth Consumer demand GDP growth Technological changes Consumer demand GDP growth Consumer demand Competition Ghana 56% 59% 75% Kenya 77% 73% Malawi 55% 8 73% 94% Nigeria 88% 5 81% Tanzania 94% Uganda 87% 67% 6 Zambia 92% 62% 77% 8 Growth

11 5. New technology pricing and data warehousing % 74% 73% 67% 64% 62% 61% 1 Cross-industry collaborative insurance products Online underwriting platforms Mobile underwriting platforms Marketing Data analytics Mobile claims processing platforms Online claims processing systems Growth 9

12 6. Organic growth and M&A opportunities In what ways do you expect to grow your revenue over the next months? Top three ranked responses Ghana Organic expansion 69% Expansion of sales force 63% New customer segments 63% Kenya Organic expansion 68% New customer segments New product lines Organic expansion New product lines Acqusitions or merger Organic expansion New customer segments Expansion of sales force New product lines Territorial expansion Organic expansion Acqusitions or merger New product lines Organic expansion Organic expansion Acqusitions or merger New product lines 68% 45% Malawi Nigeria 82% 64% 45% Tanzania 69% 63% 63% Uganda 67% 6 47% Zambia 77% 69% 54% 10 Growth

13 Seizing the growth opportunities Estimated shares of gross written premiums by the following distribution channels. Zambia Uganda Tanzania Nigeria Malawi Kenya Ghana 28% 24% 22% 32% 3 39% 47% 25% 3 17% 17% 3 8% 15% 22% 8% 13% 15% 8% 17% 1 11% 1 8% 17% 15% 9% 15% 15% 16% 11% 1 11% 12% 9% 11% 4% 15% 9% 6% 9% Brokerage Agents Direct mail Bancassurance Mobile Web sales Growth 11

14 Challenges Seeking talent, education and trust 12 Challenges

15 1 underwriting capacity Innovation 1. Availability of talent To what extent do you agree with the following statements? It is difficult for my firm to find... Top two responses Zambia Uganda Tanzania 13% 23% 19% 53% 15% 47% Nigeria 42% 42% Malawi Kenya 45% 45% Ghana 19% 25% qualified agents.... qualified actuarial/financial staff.... qualified marketing staff.... qualified insurance operations sta. qualified customer service staff. Challenges 13

16 2. Volatility of returns for shareholders/ stakeholders: underwriting capacity 3. Technological capacity 4. Distribution See 14 Challenges

17 5. Regulation In countries such What are the key challenges faced by your company with respect to regulation? Top three ranked responses Implementation of changes Expected timing Ghana 81% 81% 6. Culture and education 7. Innovation Understanding changes Expected timing Expected cost Understanding changes Implementation of changes Availability of talent Understanding changes Expected timing Availability of talent Expected cost Implementation of changes Expected cost Expected timing Understanding changes Implementation of changes Expected cost Expected timing Availability of talent Understanding changes 5 Kenya 73% 59% 59% Malawi Nigeria 67% 67% 64% Tanzania 88% 81% 56% Uganda 73% 67% 67% Zambia 69% 69% 62% Challenges 15

18 Risk A wide range of risks requires robust mitigation strategies 1 Country risk 16 Risk

19 1. Country risk 2. Capital risk What strategy is your firm using to mitigate capital risks? 73% 72% 65% 58% Organic growth Investment performance Expansion into new markets Regulatory requirements How important are the following factors affecting the capital position of the insurance company? Having a capital adequacy framework/strategy and monitoring its progress is a prerequisite for profitable growth 72% Additional corporate funding 7 Financial and business partnerships 5 Additional reinsurance purchase 46% Project scale-backs Change of business operations and structure Risk 17

20 3. Distribution risk respondents as important or somewhat How important are the following distribution risks associated with writing business in the short and medium term? 82% Concentration risk 73% Fraud 51% Poor logistics and infrastructure 41% Lack of qualified staff of staff is viewed as the most important What strategies are your firm using to mitigate distribution channel risks? % Staff training 56% 52% Data sharing with Review of authorities and distribution and insurance bodies marketing policies Investment in infrastructure projects 46% Broker reviews 18 Risk

21 4. Regulatory risk Survey respondents are most concerned with the immediate How important are following local regulatory requirements to your firm in the short and medium term? Somewhat important and extremely important responses Reporting requirements Investment requirements Pricing requirements Setting aside reserves Capital requirements 77% 77% 69% 64% 8 What strategies are your firm using to mitigate regulatory risks? 75% 6 45% 3 15% 74% 74% Improvement of internal audit and review functions External consultation 66% 65% Closer engagement with regulators Change of business operations and structure Risk 19

22 Markets are in various stages of progress and maturity in these promote trust between consumers and insurance companies and Trust Risk-based supervision Most of the countries are in the process of implementing riskbased supervision, with Kenya and Ghana leading in the maturity of the implementation. Risk-based capital requirements A few counties are in the process of introducing and implementing risk-based capital requirements. This includes introduction of key regulation around corporate governance and risk management, e.g., Kenya and Ghana. This is being done in piecemeal basis. Minimum capital requirements Most of the countries have recently reviewed or are in the process of reviewing the MCR, e.g., Kenya, Ghana, Zambia and Malawi. Inclusion Knowledge Insurance penetration This is a key issue for all the regulators who are currently implementing various strategies to increase insurance penetration in their respective countries. An example of common initiatives include insurance education including policy holder protection to improve insurance industry Regulatory guidelines on micro-insurance and Takaful A number of countries have introduced key micro-insurance and Takaful regulations in the last few years. This reflects the different nature of the micro and Takaful insurance business, e.g., Nigeria, Kenya, Credit risk A number of countries have introduced no no premium no cover policies over the years. This has lead to a significant decrease in the credit risk within the various countries, e.g., Nigeria and Ghana 20 Risk

23 5. Underwriting risk that insurers may incur greater risk than that run higher than predicted are the most 6. Reinsurance risk insurance company faces from reinsurance at the time those arrangements were important reinsurance risk in the short and Figure 19: Sources of underwriting risk How important are the following underwriting risks to your firm in the short and medium term? 79% Unexpected claims volatility 79% Higher expenses than expected 62% Changes in competitors premiums 42% Weak terms and conditions How important are the following reinsurance risks to your firm in the short and medium term? 8 Availability of cover 76% Inflexible terms and conditions 59% Reinsurer credit risk 54% Volatility in premiums charged Risk 21

24 Innovation Innovation: crucial for future growth to innovation: Survey respondents were asked to identify the But the diversity of responses 22 Innovation

25 The top two areas of innovation selected by country are: Ghana Cross-industry collaborative insurance products Marketing Cross-industry collaborative insurance products Online underwriting platforms Nigeria Kenya Mobile underwriting platforms Online underwriting platforms Mobile underwriting platforms Mobile claims processing platforms Tanzania Malawi Mobile underwriting platforms Online underwriting platforms Data analytics Online underwriting platforms Uganda Zambia Online underwriting platforms Mobile underwriting platforms Innovation 23

26 Innovation is taking hold Micro-insurance compensates operators of roadside kiosks if their space is seized for 24 Innovation

27 Agricultural insurance Livestock index insurance Health insurance Innovation 25

28 A matrix of risk an opportunity and risk across the seven Risk and opportunity matrix Less risk > Lower opportunity, lower risk Tanzania Malawi Uganda Size of bubble reflects market size in 2018 Ghana Kenya Zambia Higher opportunity, lower risk Kenya is the most advanced of the insurance Lower opportunity, higher risk Greater opportunity > Nigeria Higher opportunity, higher risk 26 Matrix

29 d opportunity Insurance premium market size forcast) 1 Kenya 1 1 Methodology behind the matrix Matrix 27

30 28 Country insights

31 Country insights Insurance premium at a glance Tanzania Uganda Zambia Malawi Nigeria Ghana Insurance premium Country insights 29

32 opportunity for expansion. 30 Country insights

33 Top drivers of growth Top challenges affecting the insurance market in your territory in the short to medium term % 41% 15% 23% % 32% 34% 18% 1 1 GDP growth Regulatory changes Volatility of returns Shareholder demands Kenya Kenya Most important innovations to the industry Percentage of GWP by insurance type % 69% 73% 86% % 35% 33% 24% 37% 35% Cross-industry collaborative insurance products Mobile underwriting platforms 1 4% 4% 2% 2% Life Health General Agricultural Microinsurance Kenya Kenya Country insights 31

34 Tanzania 32 Country insights

35 Top drivers of growth 5 41% 38% 3 5 Top challenges affecting the insurance market in your territory in the short to medium term 6 38% 56% 34% 56% 1 1 GDP growth Technological changes Volatility of returns Shareholder demands Tanzania Tanzania Most important innovations to the industry Percentage of GWP by insurance type % 81% 62% 94% % 38% 33% 37% 43% 18% 1 Cross-industry collaborative insurance products Mobile underwriting platforms 4% 1% 2% Life Health General Agricultural Microinsurance Tanzania Tanzania Country insights 33

36 Uganda Uganda s insurance market bancassurance distribution 34 Country insights

37 Top drivers of growth 5 47% 41% 3 Top challenges affecting the insurance market in your territory in the short to medium term 6 38% 34% % 13% GDP growth Competition Volatility of returns Shareholder demands Uganda Uganda Most important innovations to the industry Percentage of GWP by insurance type 10 93% % 64% 3 29% 25% 33% 25% 37% 39% Cross-industry collaborative insurance products Mobile underwriting platforms 1 4% 5% 2% 2% Life Health General Agricultural Microinsurance Uganda Uganda Country insights 35

38 Zambia rate of the seven countries in our study. 36 Country insights

39 Top drivers of growth Top challenges affecting the insurance market in your territory in the short to medium term % 41% GDP growth 22% 8% Product innovation/ consumer demand 6 46% 38% Volatility of returns 35% 46% Shareholder demands Zambia Zambia Most important innovations to the industry Percentage of GWP by insurance type % Cross-industry collaborative insurance products Zambia 85% 74% 10 Mobile underwriting platforms 6 25% 17% Zambia 33% 22% 37% 52% 4% 8% 2% 2% Life Health General Agricultural Microinsurance Country insights 37

40 Malawi 8 of gross premiums in Malawi. 38 Country insights

41 Top drivers of growth Top challenges affecting the insurance market in your territory in the short to medium term % 38% 15% 24% GDP growth Regulatory changes Volatility of returns Shareholder demands Malawi Malawi Most important innovations to the industry Percentage of GWP by insurance type % % 8 61% 3 25% 31% 33% 37% Cross-industry collaborative insurance products Mobile underwriting platforms 1 4% 1% 2% 1% Life Health General Agricultural Microinsurance Malawi Malawi Country insights 39

42 Nigeria companies are attempting to use bancassurance distribution a new government must prove penetration is evident. 40 Country insights

43 Top drivers of growth Top challenges affecting the insurance market in your territory in the short to medium term % 24% 22% 33% % 42% 27% 42% 1 1 GDP growth Product innovation/ consumer demand Volatility of returns Shareholder demands Nigeria Nigeria Most important innovations to the industry Percentage of GWP by insurance type % 7 62% % 33% 43% 37% 36% 33% 17% Cross-industry collaborative insurance products Mobile underwriting platforms 1 4% 2% 2% 1% Life Health General Agricultural Microinsurance Nigeria Nigeria Country insights 41

44 42 Country insights Ghana

45 Top drivers of growth Top challenges affecting the insurance market in your territory in the short to medium term 5 41% 38% 5 38% 38% 44% 3 19% 22% 3 26% 1 1 GDP growth Product innovation/ consumer demand Volatility of returns Shareholder demands Ghana Ghana Most important innovations to the industry Percentage of GWP by insurance type % 69% 73% 38% 3 25% 33% 33% 24% 37% 37% Cross-industry collaborative insurance products Mobile underwriting platforms 1 4% 4% 2% 2% Life Health General Agricultural Microinsurance Ghana Ghana Country insights 43

46 Section title 44

47 Expanding market opportunities in Africa offers myriad opportunities for insurance seeking to boost their insurance revenues in the region: economies represented by the seven countries surveyed in 45

48

49 Steve Osei-Mensah Shaun Crawford Trevor Rorbye Colin Daley Martin Bradley Sujay Shah Angela Muriithi Alex Thomson 47

50 Section title 48

51 Section title 49

52 EY ey.com