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MRoA/MMRC Munich Re Group 36 th AIO Annual Conference Dar Es Salaam, Tanzania May 2009 Challenges of Access to Insurance Services in Africa Junior Ngulube.

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Presentation on theme: "MRoA/MMRC Munich Re Group 36 th AIO Annual Conference Dar Es Salaam, Tanzania May 2009 Challenges of Access to Insurance Services in Africa Junior Ngulube."— Presentation transcript:

1 MRoA/MMRC Munich Re Group 36 th AIO Annual Conference Dar Es Salaam, Tanzania May 2009 Challenges of Access to Insurance Services in Africa Junior Ngulube

2 2 MRoA/MMRC Munich Re Group Challenges of Access to Insurance Services in Africa Framing the Challenges ……when you are a hammer, every problem is a nail…!

3 3 MRoA/MMRC Munich Re Group Challenges of Access to Insurance Services in Africa Framing the Challenges Insurance Penetration in Africa is Relatively Low

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

5 5 MRoA/MMRC Munich Re Group Classification of insurance markets according to their state of development (Life) Criteria 1.Life insurance penetration and density (premium per capita) 2.Consumers: Wealth, savings rate, family structures, awareness 3.Products: Range, complexity, flexibility, innovations, investment products 4.Distribution: Types and market shares of sales channels, mix, quality of agents and sales process 5.Supervision: Insurance law, supervisory authority (independence, resources, quality of data, models, instruments), practical effectivenesss and efficiency 6.Capital markets: Development and use of stocks markets, degree of integration of financial services, modern financial instruments 7.Technology available in the market (either internal or external) 8.Risk management:: Underwriting, claims management, experience studies or industry surveys, asset liability management, etc. 9.Companies organisation: Legal forms, structure, management 10.Expertise and experience available in the market

6 6 MRoA/MMRC Munich Re Group Super mature Challenges of Access to Insurance Services in Africa State of Development of Insurance Markets (Life) MatureTransitionalEmerging Source: Munich Re

7 7 MRoA/MMRC Munich Re Group Challenges of Access to Insurance Services in Africa Framing the Challenges Wealth Drives Insurance Penetration

8 8 MRoA/MMRC Munich Re Group 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 countrys 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 countrys 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 9 MRoA/MMRC Munich Re Group 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) Challenges of Access to Insurance Services in Africa Relationship between wealth and insurance penetration

10 10 MRoA/MMRC Munich Re Group 01.06.2014 Life5.1.2 Life insurance markets and competitors research, Heike Wengert, 2007 Relationship between economic wealth and life insurance penetration Global trend line Gross national income per capita (in PPP-US$) Data: year 2005 Penetration in % Emerging Markets Industrialized Countries

11 11 MRoA/MMRC Munich Re Group Relationship between economic wealth and Non-life insurance penetration

12 12 MRoA/MMRC Munich Re Group Challenges of Access to Insurance Services in Africa Framing the Challenges Growth in Insurance Penetration

13 13 MRoA/MMRC Munich Re Group Some African countries fall in the category of Emerging Markets with high growth potential Non-Life: Expected average real growth 2004 - 2010 and penetration 2010 (G7 countries not included in global averages) Angola Zambia Tanzania Sudan Nigeria New Zealand Mozambique Mauritius Kenya Ethiopia Cameroon Turkey Taiwan Switzerland South Africa Singapore Russia Norway Mexico Korea Israel India Chile Brazil Australia Argentina Canada France Germany Italy Japan United Kingdom United States China -2 0 1 2 3 -20123 NL real growth until 2010 greater than average (in std.dev.) NL real growth until 2010 smaller than average (in std. dev.) Penetration in 2010 higher than average (in std. dev.) Penetration in 2010 lower than average (in std. dev.) Note: Size of bubble relates to insurance market size in 2010

14 14 MRoA/MMRC Munich Re Group Non-life premiums outgrow economic growth in line with rising per capita income (= wealth) Non-Life: average real growth 1994 - 2004 and current penetration Sudan Nigeria Mauritius Kenya United States United Kingdom United Arab Emirates Turkey Taiwan Switzerland South Africa Slovenia Russia Portugal Poland Philippines Netherlands Morocco Mexico Malaysia Luxembourg Korea Italy Ireland India Hungary Hong Kong Greece France Finland Brazil Austria Argentina Germany Japan China -2 0 1 2 -20123 NL real growth 94-04 greater than average (in std. dev.) NL real growth 94-04 smaller than average (in std. dev.) Current penetration higher than average (in std. dev.) Current penetration lower than average (in std. dev.) Note: Size of bubble relates to insurance market size Insurance market development path Poor Fellows"Advanced Losers" Advanced Growth Markets"Typical Emerging Markets" Saudi Arabia

15 15 MRoA/MMRC Munich Re Group Interpretation: current penetration and past growth determine market potential for the future Current Penetration Growth 1994-2004 Market potential Poor FellowsBelow average Insurance market not yet mature, but also not growing fast – market remains dormant Emerging Markets Below averageAbove averageInsurance market not yet mature, but growing fast – market has great potential Advanced Growth Markets Above average Insurance market mature, but also growing fast – markets generate good revenues, but are starting to slow down Advanced Losers Above averageBelow averageInsurance market mature, not growing fast anymore

16 16 MRoA/MMRC Munich Re Group Challenges of Access to Insurance Services in Africa Framing the Challenges Is the Challenge Access to Insurance Services in Africa or Wealth?

17 17 MRoA/MMRC Munich Re Group Challenges of Access to Insurance Services in Africa Framing the Challenges Wealth in Africa

18 18 MRoA/MMRC Munich Re Group Wealth and Insurance Penetration in Africa Top 10 Countries CountyGDP (USD Billion) Market Size (USD Billion) Penetration % Per Capita Income (USD) Equatorial Guinea10.300.0020.04%21041 Libya66.200.170.31%9022 Gabon10.200.1061.04%6856 Botswana11.900.3723.9056187 Mauritius7.400.324.93%5686 South Africa282.0024.6788.75%5372 Algeria134.000.7760.59%3881 Tunisia35.000.681.94%3410 Cape Verde1.600.0221.382919 Namibia6.600.4547.96%2842

19 19 MRoA/MMRC Munich Re Group Wealth and Insurance Penetration in Africa Bottom 5 Countries CountyGDP (USD Billion) Market Size (USD Billion) Penetration % Per Capita Income (USD) Tanzania14.30.1230.86%299 Niger3.50.0220.59%247 Malawi2.40.0632.61%166 Ethiopia13.30.0970.88%149 Dem Rep of Congo8.90.0160.23%124

20 20 MRoA/MMRC Munich Re Group Challenges of Access to Insurance Services in Africa Framing the Challenges Access to Insurance for Low Income Groups

21 21 MRoA/MMRC Munich Re Group 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 22 MRoA/MMRC Munich Re Group 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, its 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 23 MRoA/MMRC Munich Re Group 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 24 MRoA/MMRC Munich Re Group Challenges of Access to Insurance Services in Africa The South African Example Access to Insurance for Low Income People

25 25 MRoA/MMRC Munich Re Group 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 26 MRoA/MMRC Munich Re Group Financial Sector Charter 3.Access to Financial Services 3.1Transactions savings, products and services 3.2Bank savings, products and services 3.3Life assurance products and services 3.4Collective investments products and services 3.5Short-Term risk insurance products 3.6Origination of :Home Loans Agricultural Loans SME Loans 3.7Consumer education Target LSM 1 – 5

27 27 MRoA/MMRC Munich Re Group Financial Sector Charter Annual Review – The FSC 2007

28 28 MRoA/MMRC Munich Re Group 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 MRoA/MMRC Munich Re Group Thank you for your attention

30 30 MRoA/MMRC Munich Re Group Diversified structure – Diversified risk Munich Re Group The above is a selection of companies operating in the relevant field of business. Reinsurance Munich Re Group Primary insuranceMunich Health Asset management Salute

31 31 MRoA/MMRC Munich Re Group Strong growth in life insurance worldwide Gross life and non-life insurance premiums worldwide in US$ bn * CAGR = inflation-adjusted compound annual growth rate 1996 – 2005. Source: MR Economic Research. US$ bn CAGR* `97-`06 Life4.3% Non- Life 3.0% GDP 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. Growth `06 4.6% 3.2% 3.9%

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


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