Microinsurance in Africa: Dramatic growth but still challenges ahead!
The importance of risk management mechanisms and with it microinsurance has grown tremendously over the past couple of years. Whereas all different stakeholders involved in financial sector development have focused on credit in the earlier days and later on as well on savings and payments, nowadays insurance is generally mentioned at the same time with the more traditional financial services and products. Its importance for poor people’s lives and in the alleviation and prevention of poverty has been recognized widely.
The emerging stage of development of microinsurance and its complexity make it difficult to get an overview of what is happening in microinsurance in Africa. The Landscape of Microinsurance in Africa 2012, a new study by Making Finance Work for Africa (MFW4A) and the Munich Re Foundation, supported by the African Development Bank, ILO’s Microinsurance Innovation Facility and the Microinsurance Network, is an effort to take stock of the current state of and recent trends in the microinsurance market in Africa. The study identifies gaps in the access to and the supply of microinsurance, an emerging industry in Africa that involves many stakeholders ranging from insurers to delivery channels, policy makers, regulators, and donors.
The research finds that at the end of 2011 more than 44 million people or properties are covered by microinsurance products. Compared to 2008, the African microinsurance industry has grown by 200%. In other words, microinsurance products were accessed by 4.4% of all Africans. Still, a huge challenge remains: 38 million insured people are concentrated in Eastern and Southern Africa, while in Central and North Africa the microinsurance sector remains rather limited. South Africa alone accounts for 60% of coverage and only eight more countries cover more than one million lives each. Together, these nine countries account for approximately 90% of total coverage in Africa. West Africa has experienced the highest growth rate since 2008, growing by more than 250% to cover 4.4 million.
Due to the culturally-rooted widespread use of funeral insurance in Southern Africa, life insurance still dominates the market, covering 34 million people. Additionally, credit life products cover almost 9 million lives, showing some growth, although slower than before. Health microinsurance coverage has mostly stagnated with just 2.4 million Africans covered. Though still in a nascent stage covering 1 million people only, property and agriculture products have experienced important innovations. Contrary to the supply analysis, focus group studies show that the demand people express centers around health, agriculture, accident and property—demand that is largely unmet.
More than three quarters of all microinsurance risk carriers are community-based organizations. However, they only account for 9% of all covered lives and properties identified. The second most common type of microinsurance providers are regulated commercial insurers (13% of organizations identified). Yet, they account for 78% of all covered lives and properties. These numbers show that massive growth in the microinsurance sector will need to come from the commercial insurance industry, whereas member groups remain the largest channel assuring outreach to otherwise uncovered customers.
The major growth experienced in microinsurance in Africa, should however not hide the fact that over 650 million Africans live in countries where microinsurance products are either absent or coverage is below 1% of total population. There is massive potential for microinsurance to expand across the continent, not just in terms of volumes but also in terms of innovative products offering both real value to clients and a business case for insurers. The research carried out shows that:
New distribution channels, such as life insurance products embedded into savings accounts or bundled into mobile phone subscriptions, have helped microinsurance to grow in terms of covered lives in the past two years. These types of developments hold great potential to dramatically increase coverage, but also raise questions from the perspectives of consumer education, protection, and regulation.
While the collected data do not allow for sophisticated client value analysis, the reported loss ratios seem to offer ample room for improved products if the microinsurance industry is truly to serve the low-income population effectively.
Although microinsurance regulation does not seem to have driven market development, the absence of clear legal frameworks has been identified as a barrier for expansion. Some African countries are currently developing legal frameworks specific to microinsurance, however, there is room for increased attention to this area. Clarity in the microinsurance legal framework is an important component to insurers’ having the confidence to invest in the paradigm shift needed for microinsurance success. Legal ambiguity is holding back innovative expansion.
Microinsurance providers were confident about the past and future short-term growth of the sector but expressed concern regarding consumer knowledge, their own knowledge of the low-income population’s needs, and product affordability.
The maturation of the microinsurance “industry” is evolutionary. Good examples are seen by others. They get copied, sometimes improved. Slowly but surely the industry progresses, more people are covered, better products are offered, and clients, insurers, distribution channels and others benefit. Continued and expanded inputs from donors, governments and others should help to accelerate the rate of microinsurance expansion – in terms of volumes, products and value.
If you want to find out more about microinsurance in Africa check out the interactive map and the Comprehensive Study as well as short Briefing Notes in English and French on 10.20.4.236:8081 or www.microinsurancelandscape.org.
Claudia Huber is advisor in Financial Systems Development at the Gesellschaft für Internationale Zusammenarbeit (GIZ), where she is responsible for the microinsurance component within the team managing the German contribution to the partnership Making Finance Work for Africa (MFW4A). Claudia is a member of the Advisory Committee of the Access to Insurance Initiative (A2ii) and a member of the Joint Working Group on Regulation, Supervision and Policy of the IAIS and the Microinsurance Network.