Taking Insurance and Financial Services solutions into Africa to create financial sustainability

01 March 2023 Thando Sompeta, CFO at Momentum Metropolitan Africa

Insurance cover brings comfort and resilience to households during times of financial shocks and devastation – but it also provides peace of mind even if risk events don’t occur.

By sharing the risk with an insurer, individuals and households can focus on what matters to them. Insurance also enables households to access services such as credit, health and education that may otherwise not be attainable to them.

The low level of insurance penetration in the Sub-Saharan African countries presents opportunities and challenges for both the financial services institutions and customers. Formalised financial institutions such as insurers have a strong role to play in, alleviating poverty, investing and planning for generational wealth, advancing development in households, business resilience, as well as capital market development which all contribute to economic growth. This sector also contributes to employment creation.

Reasons for resistance can include the cash-based nature of some of the economies coupled with lack of widespread financial education and awareness resulting in less adoption of formalized financial services in general.
Insurance is a critical component in building a resilient financial ecosystem, as it offers income protection to consumers, covers business risks and facilitates exports and imports to attract foreign investments. The tools and policies created by insurers oblige entrepreneurs to develop risk management and mitigation strategies to reduce the impact of risks risk events if they occur. Insurance also helps to ensure access – at better terms – to business financing by reducing the risk of borrower default and providing tools for risk pricing.

Regulatory transformation in driving innovation to grow the market
Regulatory reform in each country is essential in providing an enabling environment and ensuring that insurance is leveraged as a tool for financial sustainability. It is also key to unlocking the role of the insurance market in development and growth. The main drive from regulators in our regions (Botswana, Ghana, Lesotho, Mozambique and Namibia) has been the localisation of certain business functions, whereby certain services need to be performed locally, along with customer information and assets that need to be managed in the respective countries. Some of the challenges presented by these changes include the loss of economies of scale and leverage where certain functions that were centralised would need to be replicated. The upside is that this presents opportunities for the respective economies through upliftment of local skills, retention and management of assets and funds which will lead to investment opportunities and economic growth.

Innovation and technical skills always needed
We believe that innovation is essential to make insurance products relevant and valuable to households and businesses alike, and to achieve financial sustainability and resilience. We have recently rolled out Robotics Process Automation to improve our efficiency and productivity with the ultimate intention of improving the client experience as they are at the centre of everything we do. Improved product offerings provide opportunities and flexibility, allowing intermediaries and clients to develop solutions based on their personal and service preferences. We need to gear up and be able to serve the needs of today’s and tomorrow’s consumers.

The insurance sector needs to build a pool of new enhanced technical skills such as actuarial, underwriting, risk management, capital management and loss adjustment to drive new approaches and innovation. Our legislators also need to come to the party. They have a critical role to play in coordinating efforts across different stakeholders and ensuring that the regulatory body and other decision-makers have a market development mandate. Regulatory authorities also need to proactively facilitate innovation.

All stakeholders in the financial services sector have an important role to play in generating insights from available data. Innovation and skills are required to meet the demands in the fast-paced world we find ourselves in. Ultimately, the insurance industry must act to leverage data, build systems and skills, and track the right metrics to convince their investors to take the innovation challenge heads on.

Insurance exists to provide peace of mind for clients and the confidence to achieve personal, business, and financial goals, without being encumbered by worries about what might happen – and people have truly seen the value of insurance over the past few months and years, showing the need for a safety net.

But with this safety net needs to come financial education – because the better-informed people are, the better equipped they are to make sound financial decisions that can build financial sustainability and generational wealth.

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