Strategic African growth on the cards for many insurers

Growth of new business in the South African insurance market is hard to come by; be it in the short-term space or the long-term space. But this is not a story that is unique to South Africa; reports from around the world have indicated that new business growth is generally hard to come by.

But this is in markets where insurance penetration is relatively good; what else can you expect when the whole insurance market is fighting for a small pool of business? In an effort to resolve this situation, attention is being turned towards countries where insurance penetration is low; and Africa is once again being seen as a continent of significant business opportunity.

A tale of two stories

African growth has become the new buzzword in the industry with companies placing a major focus on it over the past two years. But how does one expand into Africa? What is the catalyst?

Speaking at the third annual Spotlight on South African Insurance Seminar, which was hosted by Standard & Poor’s Rating Services, a number of executives whose companies have expanded into Africa provided their insights.

Willem Malherbe, Head of Market Strategy & Regional Chairman of East Africa at MMI Holdings, said that the expansion into Africa is a tale of two stories.

“One of the stories is that companies are expanding into Africa off the back of a commodity super cycle. While this has faced a significant setback because of the changing dynamics of the Chinese economy, the super cycle will still prevail,” said Malherbe.

The second story is that of the growing middle class. While there is no doubt that this is a driver, Malherbe warns that the middle class may be smaller than some people think. “There is a rising middle class, but it depends on what story you believe. Yes it is growing, but we may find that their interests are very focused on specific products.”

Find your passion

Mahatma Gandhi once famously said that your passion will lead you right to your purpose. Therefore, if companies have a passion for investing in Africa, their products will have the desired effect in improving people’s lives.

Sunkara Rao, CEO of General Insurance Corporation (GIC) Re South Africa, said that Indian based companies have an affinity for African expansion; particularly because of the benefits it can offer. GIC Re is an Indian based company that has been operating in Africa for the past five years. “We made the decision to expand into Africa early in order to capitalise on the growing nature of the market. There is a dynamic middle class which is forming the backbone of insurance growth in the region.”

Rao added that Africa is so important to the company that it could act as a launch pad for the company’s expansion into the rest of the world. In the future, GIC Re is aiming to have an income mix made up of 50% income from Indian business and 50% income from African business.

Playing a percentage game

There is no doubt that any growth in Africa has been based on a commodity boom/super cycle. This was the case with the establishment and growth of One Re, a London based reinsurer who focuses primarily on writing African business.

CEO Andrew Lewis said that the company entered into South Africa during a commodity boom, and since then, the company has consistently seen a 5% growth in organic business. “While there is little new business to be found in the market, which company can complain about new business growth of between 5% and 10%?” added Lewis.

Areas of growth

He added that the company is looking at new business expansion from Nigeria, Kenya and Mauritius over the next five years as they are growing at rapid rates and there are very few established insurers playing in those markets.

Rao echoed Malherbe and Lewis’ sentiments that one needs to enter off the back of a commodity boom. He points out that GIC Re is focusing on West Africa as an area of significant growth with Ghana and Nigeria standing out as major role players. It is important to point out that between them, these countries hold one eighth of the world’s natural gas reserves as well as one tenth of the world’s oil reserves.

But Lewis does sound a word of caution saying that international companies cannot write all of the business, the majority of the risk needs to be written by local companies.   

Editor’s Thoughts:
Strategic thinking needs to be applied when expanding into Africa because as much as things are optimistic when referring to African expansion, things can go wrong very quickly. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

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