In Africa, insurance distribution relies on broking companies and insurance agents. The development of bank insurance is fraught with difficulty due to the persistently low penetration of bank accounts. New distribution networks are therefore central to insurers’ development strategies across the continent. Mobile telephony is becoming a particular vehicle for the distribution of insurance products.
Taking out insurance is not standard practice in Africa. Continent-wide, people spend on average less than USD 70 a year on their insurance (as opposed to more than USD 2,700 in Western Europe). The reasons for this low take-up are as manifold as they are complex: lack of any real insurance culture, no compulsory insurance for mass risks, lack of innovation and regulations overning the pricing of insurance products, not to mention the sometimes random claims settlement process, which gives insurance a bad image.
In Africa, as elsewhere, the distribution of insurance is reliant on local or international brokers, insurers’ exclusive agents or banks. It is also provided in a manner more tailored to the context via mobile operators, travel agencies and micro-finance institutions. The performance of these new distribution channels is closely linked to the African context: low penetration of bank accounts, high penetration of mobile operators, heavy presence of micro-insurance, etc. By replicating the number of positive experiences, keeping administrative constraints to a minimum and facilitating payment methods, these may all contribute towards raising people’s awareness of insurance.
The “traditional” networks are struggling to expand their customer base
The traditional network is still the leading player in terms of insurance distribution. In countries within the CIMA1 zone, it represents 60% of insurance companies’ turnover, all classes combined. Most of the business is generated by major international brokers focused on major business risks and by local brokers dealing primarily with vehicle insurance. But local broking covers only a limited section of the African population, since the majority of its customer base is urban.
The future of the traditional distribution network depends to a large extent on its capacity to integrate new technologies into its organisation to reach a broader customer base and reduce its running costs. It is also linked to the growth of the urban, young and educated middle class. Some of the major brokers that are well-established in Africa, specialists in so-called affinity distribution (“B2B2C”), also have a role to play in helping African players with a large customer base (financial institutions, mobile operators, etc.) incorporate suitable insurance and micro-insurance products into their service offer.
The lack of development in bank account penetration (less than 15% in the WAEMU zone) is also hindering the growth in bank insurance – compared to a highly developed distribution channel in Europe that enables insurance products to be distributed to bank customers. In the CIMA zone, this possibility only saw the light of day in 2004, when financial institutions, savings banks and post offices were authorised to distribute insurance products over the counter. Bank employees now have an extended portfolio of products and services designed for customers whose finances are known to them and with whose needs they are familiar. And so they might, for example, offer motor insurance to a customer taking out a bank loan in order to finance a vehicle. Allianz Senegal and the Côte d’Ivoire group SUNU generate a significant share of their life insurance business from customers of partner banks. There is still a long way to go in this sector continent-wide, given the low bank account penetration rate and lack of effective strategies.
Mobile phone operators, retailers and funeral directors represent 45% of micro-insurance product distribution in the region (McCord & Bies, 2015). Agents and brokers have a 28% market share, and the rest is held mainly by micro-finance institutions (figure).
Mutual aid organised at a family level or within associations also competes with the traditional insurers’ offer. People often prefer Informal insurances, such as tontines, since they permit members of the same community to save without the administrative complexities involved with insurers. The very low growth in mutual funds, such as those that exist in Europe and in South Africa, is also hampering the development of insurance in Africa. The counter-example of Rwanda, in terms of mutual health funds (90% of the population), illustrates the potential of this option.
Mobile telephony, a vehicule that boosts distribution
As major players in micro-insurance and constituting a burgeoning distribution channel, mobile phone operators are central to future distribution strategies. As a continent, Africa has become the second phone market after Asia, and with 160 operators, it is one of the most competitive markets in the world. The slowdown in growth on the continent and increased competition is prompting operators to taper their prices and develop networks in remote regions, but also to develop new offers in an effort to preserve their market share.
Mobile phone operators reach more Africans than any other distribution channel. For the insurance market, this vehicle offers a number of advantages. Mobile banking, which facilitates money transfers, bill settlements and payments for products and services, relies on a vast network of agents, and this enables the completion of administrative procedures that cannot be done by phone. This same network could be used for the sale of insurance products. Mobile banking makes it possible, easily and at low cost, to remotely collect and divide up small premium amounts into instalments tailored to micro-insurance. Claims payments can also be made this way, more simply and rapidly than in the traditional sector, enhancing consumer confidence. Furthermore, phone operators generally enjoy a better image than insurers and are key players because of their many communication tools (call centres, SMS, email, etc.) and their marketing muscle. Their network of agents means they also have an unrivalled presence in rural areas.
Faced with aggressive competition in their sector, mobile phone operators view insurance as a way to differentiate their product and as a source of additional revenue.
By offering useful products (health insurance for example) to those customers who reach a minimum monthly level of consumption, they mitigate any subscription volatility and increase their revenue (two key indicators for the sector). Packages based on the Freemium model (the free-of-charge basic version coupled with paying options) enable operator to tap into a fresh income stream. Despite the still considerable constraints (the need for a written contract, limited technical solutions and high levels of user illiteracy which reduces the effectiveness of communications via SMS, etc.), the distribution of insurance via mobile phones has a promising future. The phone sector would be well advised to seek the services of insurance specialists to design offers tailored to its customer base.
Sixty percent of Africans will still have no access to the mobile web in 2020, and yet the growth of e-commerce will come mainly through mobile phones. Recent insurance-centred initiatives include the announcement of the partnership between Axa and Jumia (a major e-commerce operator in Africa). Other similar initiatives will soon deliver.
In the African insurance sector, one of the most dynamic markets in the world, the future belongs to the players who know how to innovate effectively and seize the moment. Kenya’s agricultural insurance product Takaful, launched in 2011, simultaneously uses satellite images to automatically detect drought areas (without insurance claim notification) and mobile banking technology to pay premiums and claims – all of this taking its inspiration from the Islamic cooperative insurance system in order to respect local religious beliefs. This innovative product is helping to embed the insurance culture on the continent.
1. The Inter-African Conference on Insurance Markets (CIMA) is an inter-state organisation spanning sixteen member states.
McCord, M.J. & Bies, K., “The 2015 Landscape of micro-insurance in Africa”,
Micro-insurance Network, 2015.