Insurance refers to a promise of compensation in case of a potential loss, in return for a periodic payment. It is intended to offer a measure of financial protection and a means of risk management to individuals and businesses. There are two distinct types of insurance:
- Non-life, property and casualty insurance, which enables protection against risks, such as damage to property or accidents;
- Life insurance, that either pays out a sum to dependents on death of the insured or a means of saving that will pay out a lump sum on the maturity of the policy, for example on a specific date or at retirement.
Insurance penetration remains low across Africa. The whole of Africa, with the notable exception of South Africa, has an insurance penetration of roughly one per cent. The sector in African countries is at different stages of development and relatively diverseproduct offering with only 7 countries having a penetration rate exceeding 2 percent. The industry is mostly dominated by the non-life insurance business, with life insurance at an early stage of development. Life insurance is relatively undeveloped in most countries, since not only is there insufficiently developed data on mortality and longevity but also a shortage of specialised skills needed. South Africa accounts for 93 percent of life business and over 50 percent in non-life business in sub-Saharan Africa.
There are considerable opportunities for further developing both general and life insurance in the continent. Products that can usefully be developed include, but are not limited to, health insurance, micro-insurance, agricultural insurance and other products that can alleviate poverty and promote small and medium enterprises (SMEs). One area of great interest is catastrophe insurance. Clearly floods, droughts, earthquakes and other types of adverse climatic conditions may have a profound impact on the populations affected by them, and significant developments are underway in creating the conditions to insure against these events.
The insurance industry in Africa has been growing at a moderate pace relative to other sectors of the financial services industry. Life insurance premiums in Africa fell by 2.4% to USD 47bn in 2010 after the 1.7% increase in 2009. South Africa represents the principal market, accounting for more than 90% of regional premium volume. In Egypt, the third largest market in the continent, the premiums shrank by 18%. Takaful companies have begun to set up operation across several African countries with the potential to attract the Muslim population.
There is very little available data on the non-life insurance sector. Swiss Re informs that the non-life premiums in Africa rose 4.1% to USD 19bn, a 3.8% increase compared to 2009, with South Africa, the largest market accounting for half of the regional non-life premium volume, experiencing a 4.2% growth.
Reinsurance is insurance purchased by insurers (called reinsurers) from other insurers to limit the total loss the latter would experience in case of a disaster.
According to SwissRe, Africa’s reinsurance market represented in 2011 a mere 0.8% of the world share in direct premiums compared to 2.8% for Latin America and 10.7% for emerging markets and is worth a total USD 6.4 billion compared to USD 21.9 billion for Latin America and USD 83.7 billion for emerging markets.
The Insurance industry in Africa still however faces major challenges, with some specifically affecting the reinsurance industry. The African reinsurance and insurance industries are heavily correlated to global trends, have high frequency of claim recurrence due to aging infrastructure relying largely on imports and thus on hard currency for replacement, lack adequately skilled labor and face ineffective and ill-enforced legal frameworks.