Looking back
EMERGING AFRICA
When it comes to opportunities in emerging economies, Africa is often overlooked. Intelligent Insurer investigates the opportunities the continent holds for insurers.
D
espite the various challenges many African countries face, many are now
displaying economic growth underpinned by a burgeoning insurance industry that has taken some significant strides forward in recent years.
“If you take Africa as a continent, certainly in
terms of its insurance market, it has emerged substantially over the last 20 to 30 years,” says Peter King, managing director of C K Re Ltd. “This is because it is now mainly controlled by young chief executive officers and managing directors in their middle to late thirties, who have been exposed to the professional techniques of the world. They are also well travelled and better educated.”
But despite many improvements, King argues
that progress is still necessary on the continent. “The one quantum leap that Africa, excluding
South Africa, still needs is to embrace risk management techniques,” he says. “I don’t mean in its widest sense, with professionally trained surveyors swarming over every risk, just in terms of people understanding the risks and elements and exposures.
“This is one of the problems reinsurers have.
There is a lack of technically adept insurance information available to properly assess and underwrite risks—Africa still has a massive problem with the collection and storage of statistical data.
62 | INTELLIGENT INSURER | Summer 2011 “This means that people may come out with
prophetic statements, without those statements being based on quality data. For example, when they discovered AIDS/HIV, some people were saying that half the population would die from it and that this would have a devastating effect on the life insurance industry in Africa.
“This didn’t happen for a whole variety of
reasons. The impact of AIDS just didn’t get to the doomsday levels people said it would. Secondly, less than two percent of the people in Africa carry life insurance and that two percent comes from a distinct part of society.
“The problem is when people come out with
these doomsday scenarios, people in Africa will say they are not true, but there is a lack of cohesive data to back up many of their counterclaims.”
This lack of data also means that despite
interest in Africa as a market by the international insurance industry, there is a distinct lack of quality information to feed into the technology being used in more developed markets.
“For example, over the last 20 to 30 years,
everyone in the London market will now underwrite off basic statistical data—they have computer programs, line settings and premium settings,” says King. “So whilst you can load the technical data into one of these programmes, press a button and get a premium, you cannot do
this for Africa—and indeed some other emerging markets—because the data is often lacking.”
There is light at the end of the tunnel. But
King says insurers and reinsurers in more developed parts of the world must take some responsibility for helping the African insurance industry develop by investing in it.
“As an emerged market, we’ve got to realise
that we have to embrace these economies and start to invest in them,” he says. “Africa is an attractive market because rates are still artificially high in comparison with the soft markets in other parts of the world. Loss ratios in Africa are also modestly low compared with the rest of the market, where they are generally modestly high. The continent is growing, as is its economy. It is a case of putting £5 in and five to 10 years later getting £10 pounds back out.”
Part of this investment also involves educating people, argues King.
“The biggest quantum leap Africa needs to make is embracing risk management. This means bringing people in Africa over to the developed markets, investing in them and putting them through quality training courses. Then sending them back into their own countries where they can contribute.”
It would therefore appear that the old adage holds true in Africa—you get out what you put in.
©
iStockphoto.com / FrankvandenBergh
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