1. 36th AIO Annual Conference Dar Es Salaam, Tanzania May 2009
Challenges of Access to Insurance Services in Africa
Junior Ngulube

2. Challenges of Access to Insurance Services in Africa Framing the Challenges
“……when you are a hammer, every problem is a nail…!”

3. Challenges of Access to Insurance Services in Africa Framing the Challenges
Insurance Penetration in Africa is Relatively Low

4. Low per-capita income and market penetration
Challenges of Access to Insurance Services in Africa Framing the Challenges
Per-capita income (2006, US$) Insurance market penetration (2006, in %)
Penetration much lower if South Africa is excluded (NL: 0.82, L: 0.33)
Low per-capita income and market penetration

5. Classification of insurance markets according to their state of development (Life)
Criteria
Life insurance penetration and density (premium per capita)
Consumers: Wealth, savings rate, family structures, awareness
Products: Range, complexity, flexibility, innovations, investment products
Distribution: Types and market shares of sales channels, mix, quality of agents and sales process
Supervision: Insurance law, supervisory authority (independence, resources, quality of data, models, instruments), practical effectivenesss and efficiency
Capital markets: Development and use of stocks markets, degree of integration of financial services, modern financial instruments
Technology available in the market (either internal or external)
Risk management:: Underwriting, claims management, experience studies or industry surveys, asset liability management, etc.
Companies‘ organisation: Legal forms, structure, management
Expertise and experience available in the market

6. Challenges of Access to Insurance Services in Africa State of Development of Insurance Markets (Life)
Super mature
Mature
Transitional
Emerging
Source: Munich Re

7. Challenges of Access to Insurance Services in Africa Framing the Challenges
Wealth Drives Insurance Penetration

8. Challenges of Access to Insurance Services
Relationship between wealth and insurance penetration
There is a positive relationship between wealth (measured as gross national income per capita in purchasing power parities) and a country’s insurance penetration
Higher wealth tends to result in a rising penetration in life as well as in non-life insurance (i.e. the insurance market is growing faster than the overall economy)
In general, the increase is stronger in emerging markets than in industrialized countries
Wealth alone does not explain the state of a country’s life insurance market. Other causes are differences in life insurance market environments across countries (e.g. degree of old-age pension systems being based on social security).
Based on the overall global trend, growth potential in life business in general exists in emerging markets (catching up) as well as in industrialized countries (reform of social security systems, ageing society)

9.
Challenges of Access to Insurance Services in Africa Relationship between wealth and insurance penetration
Non-life premiums outgrow economic growth in line with rising per capita income (=wealth), but only up to a certain level of wealth (~30,000 USD) – after that insurance grows in parallel with the economy
Per capita income (wealth) is measured in terms of purchasing power parities to exclude the exchange-rate effect
The economic explanation is that insurance is a “superior good” – as incomes rise, the consumption of insurance rises over-proportionately
At any given level of per capita income, insurance penetration may still differ (e.g. Kenya and Angola have a much higher insurance penetration compared to Nigeria or Tanzania) – this can be explained by structural factors other than income per capita (e.g. oil / energy insurance business, size of population)
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10. Relationship between economic wealth and life insurance penetration
Data: year 2005
Penetration in %
Industrialized Countries
Global trend line
Emerging Markets
In this graph various markets are plotted according to their gross national income per capita (horizontal axis) and their life insurance penetration rate (vertical axis).
The data are from business year 2005.
We can see a positive relationship between a countrys wealth and the relative size of the life insurance market.
Markets with a higher per capita income tend to have a higher penetration.
If we think of ou classification before.....
1. This graph shows the relationship between a countrys wealth (measured as gross national income per capita) and the relative size of the life insurance market.
The penetration, i.e. the life insurance premium volume in % of the gross domestic product (GDP), is a measure for the state and importance of life insurance in an economy is.
There is a positive relationship between a country’s wealth and its insurance penetration; higher wealth tends to result in a rising penetration. That means over time the insurance market is growing faster than the overall economy (on an average in the long run).
Reason: with growing wealth the need for financial protection and provision and the ability to save increases (Sparfähigkeit (Möglichkeit abhängig vom zur Verfügung stehenden Einkommen; Fähigkeit, Prämien zahlen zu können), Attitude towards saving (Maslow needs pyramid. Erst nach Befriedigung der Grundbedürfnisse (Nahrung, Wohnraum, Kleidung, Wärme, körperliche Sicherheit) kommt das finanzielle Absicherungsbedürfnis zumTragen. )
The positive relationship is shown by the red trend line (Berechnung:?)
Aus Grafik können wir ablesen:
Industrialised countries with a higher wealth on average have higher penetration rates than less developed countries or so called ermerging markets. Sprich der LV-Markt ist stärker entwickelt in diesen Märkten
With increasing wealth emerging markets will catch up – on average along the trend line. And they catch up quite fast. Because:
For lower wealth the trend line is steeper, i.e. one unit more GNI per capita results in a higher increase of the penetration rate.
As GNI per capita growth tends to be higher in emerging markets, they will move right faster along the trend line than countries with a higher wealth.
This opens up a high business potenial for the life insurance industry in emerging markets (move right faster and move up steeper).
This positive relationship is also true for non-life business.
2. The graph also shows deviations of individual countries from the global trend line.
Existing deviations of individual countries from the “global trend line” shown in the graph are due to differences in life insurance market environments across countries. The most important factors to explain deviations are the degree of old-age pension systems being based on social security, tax incentives to buy life insurance and the mentality of the consumers.
That means that the wealth alone does not explain the state and development of a country’s life insurance market.
The countries below the trend line have a relatively low penetration.
For example: Germany has a relatively low penetration, lower than other European countries. This is due to the strong social security system. The comparatively low penetration is a hint on the business potential of the German market which would be opened if the state system was reduced.
3.Actual movements over time are very interesting. How fast does a country move along the trend? If a country moves away from or towards the trend line this will point to changes in framework conditions.
For example South Korea was there in Today, 20years later it is here. That is a speedy development. I was told that the development is due to tax incentives. Is that right?
4. There is a further interesting aspect. Looking at older graphs we can see that in former times the trend line was much flatter. That means that the same increase in wealth led to smaller increases in penetration.
Reasons: catch up faster due to international integration and globalization.
Growth potential
The growth potential is twofold: 1. firstly the rising wealth, esp. in emerging markets (catching up), 2. secondly changes in framework conditions (reform of social security systems, ageing society). However, both drivers are not a never ending story. After a certain level of GDP per capita the life insurance growth slows down. And when consumers and companies have fully adapted to changed conditions, their is no further growth effect.
Let’s look at some examples for deviations:
UK: This graph supports what we have said in the first part today. The thin state pension system and the strong investment character of life insurance has led to a big private life insurance market.
Switzerland: The Swiss life insurance companies take at least as far as the premium volume is concerned advantage from the obligatory second pillar in the Swiss pension system. Of course, another factor may be the Swiss mentality: they save more money and they prefer secure products like life insurance.
Germany has a relatively low penetration, lower than other European countries. This is due to the strong social security system. The comparatively low penetration is a hint on the business potential of the German market which would be opened if the state system was reduced.
USA: they have the highest GNI per capita, but a relatively low penetration. As they do not have as luxurious state pensions as the Germans this may be a hint that the US citizens do not save enough for old-age or at least do not use life insurance for this purpose. And this is true. Americans buy cheap term insurance products and invest the rest in other savings vehicles.
Korea: The other way round is Korea. Perhaps our guest from Korea could try to explain the position.
(They have a large share of life insurance savings products. I have heard that this may change.)
Greek: The Greek life insurance market is the most underdeveloped one in the “old” European Union (consisting of 15 states). Their wealth was below the EU standard throughout the whole time since Greece’s entry in the EU at the beginning of the 80’s. But if we compare Greece with other countries of similar wealth, e.g. Portugal, we see that this explanation is not sufficient.
The Greeks first wanted to have a protection for health insurance. So, life was sold together with health. This did not lead to an independent development of life insurance. (Life was always related to health business and its problems, which were quite severe in the past.)
Another reason for the underdevelopment is the long period of inflation until the 90’s. This made long term investment in life policies extremely unattractive.
In addition the Greek mentality was not in favour of long term contracts or of securing the future through insurance contracts. Tight family relations made sure that widows and orphans were not left alone after the death of the head of the family.
Interesting for me was to see that most Eastern European countries are still below the trend line. Given the same GDP per capita the penetration is lower than in Asian emerging markets.
Gross national income per capita (in PPP-US$)
Life5.1.2 Life insurance markets and competitors research, Heike Wengert, 2007
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11.
Relationship between economic wealth and Non-life insurance penetration
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12. Challenges of Access to Insurance Services in Africa Framing the Challenges
Growth in Insurance Penetration

13.
Some African countries fall in the category of Emerging Markets with high growth potential
Non-Life: Expected average real growth and penetration 2010
(G7 countries not included in global averages)
NL real growth until 2010 greater than
average (in std.dev.)
China
Angola 3
Sudan 2
India
Turkey
Russia
Chile 1
Argentina
Tanzania
Mozambique
Penetration in 2010 lower than average (in std. dev.)
Singapore
Penetration in 2010 higher than average (in std. dev.)
Ethiopia
Korea
Nigeria
Mauritius
Zambia
Mexico
Taiwan
South Africa
Cameroon
Brazil
Israel -2 -1 1 2 3
Kenya
New Zealand
Australia
Canada
United States
Japan
Norway
France
United Kingdom -1
Italy
Germany
Switzerland
NL real growth until 2010 smaller than average (in std. dev.) -2
Note: Size of bubble relates to insurance market size in 2010
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14.
Non-life premiums outgrow economic growth in line with rising per capita income (= wealth)
Non-Life: average real growth and current penetration
„Typical Emerging Markets"
NL real growth greater than average (in std. dev.)
„Advanced Growth Markets" 2
Russia
China
Sudan
Taiwan
Insurance market
development path
Turkey 1
India
Greece
Poland
Argentina
Ireland
Korea
Slovenia
Current penetration lower than average (in std. dev.)
Saudi Arabia
South Africa
Nigeria
Malaysia
Luxembourg
Netherlands
Mexico
Hungary
Morocco
Portugal
Finland
Switzerland
United States
Brazil
Italy
France
United Kingdom -2 -1
Mauritius 1 2 3
Hong Kong
Austria
Philippines
Germany
Current penetration higher than average (in std. dev.)
United Arab Emirates
Kenya
Japan -1
„Poor Fellows"
„Advanced Losers"
NL real growth smaller than average (in std. dev.) -2
Note: Size of bubble relates to insurance market size
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15.
Interpretation: current penetration and past growth determine market potential for the future
Current Penetration
Growth
Market potential
Poor Fellows
Below average
Insurance market not yet mature, but also not growing fast – market remains dormant
Emerging Markets
Above average
Insurance market not yet mature, but growing fast – market has great potential
Advanced Growth Markets
Insurance market mature, but also growing fast – markets generate good revenues, but are starting to slow down
Advanced Losers
Insurance market mature, not growing fast anymore
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16. Challenges of Access to Insurance Services in Africa Framing the Challenges
Is the Challenge Access to Insurance Services in Africa or Wealth?

17. Challenges of Access to Insurance Services in Africa Framing the Challenges
Wealth in Africa

18. Wealth and Insurance Penetration in Africa Top 10 Countries
County
GDP (USD Billion)
Market Size (USD Billion)
Penetration %
Per Capita Income (USD)
Equatorial Guinea
10.30
0.002
0.04%
21041
Libya
66.20
0.17
0.31%
9022
Gabon
10.20
0.106
1.04%
6856
Botswana
11.90
0.372
3.905
6187
Mauritius
7.40
0.32
4.93%
5686
South Africa
282.00
24.678
8.75%
5372
Algeria
134.00
0.776
0.59%
3881
Tunisia
35.00
0.68
1.94%
3410
Cape Verde
1.60
0.022
1.38
2919
Namibia
6.60
0.454
7.96%
2842

19. Wealth and Insurance Penetration in Africa Bottom 5 Countries
County
GDP
(USD Billion)
Market Size (USD Billion)
Penetration %
Per Capita Income (USD)
Tanzania
14.3
0.123
0.86%
299
Niger
3.5
0.022
0.59%
247
Malawi
2.4
0.063
2.61%
166
Ethiopia
13.3
0.097
0.88%
149
Dem Rep of Congo
8.9
0.016
0.23%
124

20. Challenges of Access to Insurance Services in Africa Framing the Challenges
Access to Insurance for Low Income Groups

21. Challenges of Access to Insurance Services in Africa Need for Insurance Among Low Income Groups
Asset protection and life insurance low in priority
Top priorities: food, shelter, clothing, medicine, provision for funerals, education
Perception of risk centres on loss of a job, loss of an income provider, disease or death
Least important perception of risk concerns things that can be replaced e.g. assets
Asset ownership in this sector is low or assets low in value
Even when available, money is fungible leading to skipped premiums

22. Challenges of Access to Insurance Services in Africa Supply of Insurance to Low Income Groups
This market generally not targeted – insurance is sold not bought and even when bought, it’s a grudge purchase
Existing insurance products designed for commercial and higher income groups
Experience of the product may have been poor (repudiated claims, complexity, policy language or just bad service)
High friction costs in the value chain: premium collection, claims handling, large number of policyholders against low premium volumes
Lack of property rights and legal ownership of assets renders them “dead capital” that cannot be traded and hence not insured
Intermediation replaced by “tick-the-box” intermediation with no explanation of the product or terms and conditions

23. Challenges of Access to Insurance Services in Africa Competition to Insurance Solutions - Coping
Self-insurance
Extended family support especially in rural areas
Accrual of social capital as an investment
Borrowing from relatives, employers and even money lenders
Looking for alternative “livelihood” opportunities
Distress selling of assets like livestock and other property
Distress migration - to urban areas or even other countries

24. Challenges of Access to Insurance Services in Africa The South African Example
Access to Insurance for Low Income People

25. Financial Sector Charter
Framework and principles upon which BEE will be implemented in the Financial Sector
Charter Committed Financial Institutions to transform in :
Human Resources development
Procurement of goods and services
Access to financial services
Empowerment financing
Ownership and control
Corporate social investment

26. Financial Sector Charter
3. Access to Financial Services
3.1 Transactions savings, products and services
3.2 Bank savings, products and services
3.3 Life assurance products and services
3.4 Collective investments products and services
3.5 Short-Term risk insurance products
3.6 Origination of : Home Loans
Agricultural Loans
SME Loans
3.7 Consumer education
Target
LSM 1 – 5
LSM 1 – 5

27. Financial Sector Charter Annual Review – The FSC 2007

28. Challenges of Access to Insurance Services in Africa Conclusion
Wealth drives insurance penetration and eases access
Low income or poor communities have evolved COPING mechanisms to address their exposure to risk
Where there is a FELT NEED, financial services will be consumed even by low income groups
Replaceable assets rank lowly in priority regarding perception of risk, made worse by their untradeable status
In the case of South Africa, banking and life insurance have had better success than non-life insurance
A sustained and concerted effort is called for to achieve penetration in low income groups even where there is a FELT NEED.

29. Thank you for your attention

30. Diversified structure – Diversified risk
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Munich Re Group
Diversified structure – Diversified risk
Munich Re Group
Reinsurance
Munich Health
Primary insurance
Salute
Update March 2009
Combining primary insurance and reinsurance, our healthcare activities have been bundled in the business segment International Health, with more than 3,500 healthcare professionals at 25 locations and clients in more than 40 countries.
Asset management
The above is a selection of companies operating in the relevant field of business.
3/31/2017

31. Strong growth in life insurance worldwide
Gross life and non-life insurance premiums worldwide in US$ bn
Growth `06
CAGR*`97-`06
US$ bn
Life
4.6%
4.3%
Non-Life
3.2%
3.0%
GDP
3.9%
3.1%
In last the last 25 years global life insurance has grown stronger on the average than non-life insurance and the overall economy.
*CAGR = inflation-adjusted compound annual growth rate 1996 – 2005.
Source: MR Economic Research.

32. Rising importance of life insurance in the global economy
Global life insurance penetration (GWP in % of GDP worldwide) %
Global average of 4.1% in 2006 ■
Long-term trend
2006
From 1980 up to 2000 global penetration rose fast. Growing wealth leads to higher saving rates and higher demand for risk protection (Maslow‘s hierarchy of needs) + other favourite framework conditions.
Source: MR Economic Research.