An evening out in Abidjan can include a smooth ride under the newly constructed Henri Konan Bédié Bridge, a drink at Hotel Ivoire—a post-colonial 1960s hotel with a recent renovation— and a deep restful night at the newly opened Radisson Blu Abidjan.
You can also stop at the new mall — constructed by French distribution group Comptoir Francais de l’Afrique de l’Ouest (CFAO) in collaboration with French retailer Carrefour– that is meant to tap into the growing middle class in the city.
Cote d’Ivoire is the epitome of the African growth story. First, it has significant population growth of around 2.5 percent. Second are rising incomes. Gross domestic product per capita is up nearly 70 percent in the past decade. Third, robust economic growth projected at 8.4 percent in Cote d’Ivoire for 2015-2016 surpasses the 4.3 percent projected for sub-Saharan Africa as a whole in 2016 and and 5.1 percent in 2017 by the International Monetary Fund.
Insurance companies have historically focused their energies on South Africa, one of Africa’s most mature financial markets. Life insurance premiums in South Africa accounted for almost 90 percent of the total life premiums across Africa in 2013. Fast growth, however, is changing the balance in Cote d’Ivoire. Ghana and Kenya have already expanded the market, reducing South Africa’s market share.
The rise in incomes and affluence feed insurance purchases as consumers spend more on discretionary items such as cars and second homes. A bump in spending on basics, including health care and mobile phones, has also created new streams of insurance premium revenues for companies.
Yet insurance premiums paid per capita in sub-Sahara lag behind emerging Asian economies including India and Vietnam, with the premiums at less than 3 percent of GDP (U.S. is more than twice this percent). Non-life insurance premiums as a percentage of GDP hover at less than 1 percent in some of Africa’s major economies, including Ghana, Tanzania, Zambia and Nigeria.
Statistics suggest fertile ground for a regional boom in the insurance industry. Rising populations will breed further consumer demand, most notably in Ghana, Nigeria and Zambia, albeit only if the services offered can grow to meet the market.
African insurers have traditionally targeted the upper-income population because of disposal income and financial literacy. But the new consumer base is requiring changes to the system. For example, distribution through brokers and brick-and-mortar banks are inefficient pathways to reaching the lower-income population.
Insurers are building online and mobile underwriting platforms for policy quotations and renewals as well as purchase and payment. Health insurance is offered through text message in order to expand access. Kenya and Nigeria are the leaders in this space, with m-Pesa mobile payment platform handling outpatient benefits and compensation for lost income.
Agriculture insurance is not creative either but insurers have found ways to minimize risks and reassure farmers skeptical of the actual payoff of having insurance. These include teaching farmers how to use weather data collected at remote monitoring stations, crossing the data with the usage of inputs (seeds, fertilizers, chemicals) and managing insurance payments based off those inputs.
A call for data warehousing and better analytics is breeding unplanned dates between telecom executives, insurance executives, and IT entrepreneurs. Expect these get-togethers to occur more often. A lack of capital on balance sheets to fund these get-togethers and the creative ideas that emerge from them is breeding excitement in large corporate players and big private equity players.
Recruiting and retaining the right people is also of vital concern, particularly in a region where nearly 50 percent of premiums are still sold face-to-face. Negotiating the balance between adding more talented people and growing technological capabilities is a critical piece in the expansion plan.
Insurers simultaneously must navigate the potential downside risks to business culture. In developed markets, brand names like State Farm and Geico live off a culture and education of the populace that brings on family members and friends to their platforms by word of mouth. In emerging markets, it is addressing needs and being innovative. Then comes the relationship to customer – a novel challenge for insurers stretching beyond the urban areas.
Sub-Saharan Africa’s insurance market remains an open frontier with many nuisances. The promise of great returns has to be crossed with the challenges of undertaking in unknown markets with customers and providers slowly understanding together what they actually need from each other.
Whether a sub-Saharan strategy or sub-regional strategy (such as East Africa) will work best is unknown to operators. But three things are clear: first-movers have an advantage, innovation and agility will trounce first-mover advantages, and there are insurers looking at sub-Saharan Africa. They’re budgeting up the cash. All in all, the competition bodes well for potential consumers in rural and urban sub-Saharan Africa and beyond.
Kurt Davis Jr. is an investment banker with private equity experience in emerging economies focusing on the natural resources and energy sectors. He earned a law degree in tax and commercial law at the University of Virginia’s School of Law and a master’s of business administration in finance, entrepreneurship and operations from the University of Chicago. He can be reached at kurt.davis.jr@gmail.com.
