Taking Insurance IT into Africa
The African Insurance Organisation has long warned that lack of Information and Communication Technology (ICT) infrastructure is holding the African insurance market back. The additional challenge of getting legacy computer systems to provide transparency, quality risk management and excellent control systems which they were never built to do, is forcing insurers to rethink their systems strategy.
With greater regulation of the insurance market now taking place across the African continent some of the major challenges facing the industry, which have been identified by the African Insurance Organisation, are now being addressed. This is now drawing the attention of investors large and small to the potential of the African insurance market.
“Africa is big news following the World Cup,” says Rhys Collins, Head of African Operations for SSP, a leading provider of insurance software across the continent, “and we are finding that a growing number of South African and global insurers are looking to share in the growth of this market. The insurance sector in Africa only represented about 1.3 percent of the global insurance business in 2007, according to Swiss Re Economic Research. In the ‘South African Insurance Industry Forecast to 2013’ by RNCOSIndustry Research Solutions, 85 percent of the current African insurance market is in South Africa. Both figures demonstratethe underexploited potential of the insurance market on the continent. Take for example, Zimbabwe where 90% of cars are not insured. Existing growth potential brought about by a plethora of uninsured risks in Africa will continued to attract the attention of international investors. ”
Sanlam, for example, has recently expressed its satisfaction with the promise shown by their operations in such markets as Ghana, Kenya, Tanzania, Zambia and Botswana. They also recently completed a transaction in Nigeria and are believed to be eyeing other opportunities across the continent.
Hollard Insurance is another good example of success in the African market with CEO, Nic Kohler, saying 2010 was a year of really great achievements for Hollard, including record financial results with a worldwide income of R13.2-billion and profits that have topped the one-billion rand mark. Kohler said that Hollard's global footprint was to get larger, with the opening of a Zambian office bringing the total number of countries the company operated in to 10.
“We’re seeing tighter regulatory and governance-type requirements from our existing and new African customers and while regulatory change is therefore good for the industry,” continues Collins, “the flipside is that more regulation is putting pressure on insurers which will require major changes to their administration systems.”
SSP has identified three trends in the African Insurance market that need to be watched. Firstly, the need for adequate back-office administration systems is driving insurers and new entrants into African markets to look to new technology, which is not dependant on in-house IT resources. Secondly, the concept of Software as a Service (SaaS), is becoming more and more relevant in the African market where a track record of many implementation issues exists for the traditional in-house model. “SaaS can provide a safe route for insurers. The last trend is that the African consumer is by-passing the desktop internet connection and going directly to hand-held devices,” says Collins.
He believes that to deliver insurance products and services effectively on the ground, insurers, micro insurers or agencies of any size need a strong back office and ICT infrastructure. “Often African businesses start selling policies before developing the infrastructure to support the business process. Our advice would be to find a technology supplier with a proven local track record and knowledge of local insurance requirements. SSP for example has a well-referenced client base in Africa with clients in South Africa, Botswana, Zimbabwe, Malawi, Tanzania, Kenya, Nigeria, Mozambique and Uganda benefitting from our ability to implement solutions under budget and within time frames.”
Focusing on SaaS, Collins says it should be considered as a serious alternative to ‘owning your own system’. A SaaS platform can provide applications for a number of operations or even small micro-insurance agencies simultaneously. Small operators would get the ICT strength of a major insurance company while maintaining the advantage of having knowledge of the local markets.
Addressing the third trend identified, the adoption of sophisticated hand-held devices in Africa has been immense. Large numbers of lower income individuals are spending their hard earned currency on what may be considered a luxury in the west. Collins says that the battle for the African consumers’ insurance premium will be fought and won on the hand-held device. Mobile data and handsets are definite drivers for the African market, but the key is creating the back office capability first. If players in the insurance market can’t afford their own system, Collins believes they will need to seriously consider SaaS.
“The astonishing success of South Africa’s hosting of the World Cup in 2010 has created and new ‘can do’ spirit in Africa. Players in the insurance market are looking at the African continent with new eyes and see a huge untapped potential and one in which better regulation is making Africa a safer bet. Companies moving into the African insurance sector should not, however, only see Africa as a territory for fresh pickings but also understand that they are doing something really important for the total health of the country’s financial sector. Analysis by the United States Agency for International Development of the subject has shown that countries are much more likely to experience sustained growth if their insurance markets develop well. Insurance market development is also closely related to improved financial sector performance and insurance markets do not develop adequately without both public and private sector investment in their infrastructure. Insurers therefore need to bear in mind that they encourage a greater efficiency and depth in the financial sector, by complementing, competing, and otherwise improving the services offered by other financial institutions. They also need to know that a critical factor in attaining success in African insurance operation is getting the ICT right up front. Choosing the correct ICT partner will make all the difference,” he concludes.
