Tavaziva Madzinga reports on Africas fast-growing economies and what this means for savings and insurance on the continent
Over the past few years, I have seen the financial services industry across the vast African continent transform, with the regulatory landscape tightening and consumers' awareness growing. In future, a burgeoning middle class will mean more disposable income, although the cost of living is also generally on the increase.
Over time, these factors will mean people in Africa will increasingly seek to protect themselves from the risks that can affect their income and assets. One of the best ways that they will achieve this protection is through savings and insurance, increasing the demand for these products on the continent in future.
Africa has had its challenges. In the past, political and civil instability, poverty, limited infrastructure and poor governance has held back many countries. In recent years, many African countries have been breaking these barriers and moving forward, resulting in strong macro-economic growth and rapid financial regulatory reform.
The insurance services we see now in Africa have come a long way from what was offered, say, 50 years ago. Today, the lines of who provides insurance are blurred as non-traditional competitors such as telecommunications providers and banks now take a significant portion of the population's share of pocket.
The once small African insurance market is now expanding at a steady pace and the opportunity lies in developing innovations to meet customers' ever-growing sophistication. Actuaries who understand the market's growth potential will be able to develop targeted products that cater specifically to customers' needs. In turn, this will help to restore faith in the insurance industry across Africa.
Role of mobile technology
The future is digital, whichever direction you look. It is a reality of business, whether on mobile phones or via the internet. An increasing number of products and services will be distributed through digital platforms as customers continue to move towards having more control over their finances. Businesses will need to evolve and invest significantly to meet this growing need, which
will only get more sophisticated. Businesses have to continue to invest in products to keep up with the consumer demand.
In Kenya, where the insurance penetration rate is below 3%, the rapid growth of mobile technology has resulted in products being developed that cater to people in the large informal sector. There is technology that enables customers to invest in money markets using their mobile devices. This includes those in the informal sector, a previously unexplored market. One example is in agricultural insurance, where great strides have been made with mobile applications that assist Kenyan farmers to manage the risk to their livestock and crops.
Nigeria also has a low insurance penetration rate, but it has a substantial population - by far the largest in Africa and seventh largest in the world - and a GDP greater than that of South Africa. The potential in Nigeria is colossal.
To harness these opportunities, insurance products have to be easy to access and to understand. In terms of access, a great proportion of the population across Africa now own mobile phones. Distributing insurance products through mobile phones to the informal mass market offers exciting opportunities. Here, customer self-service is encouraged and the opportunities for cross-selling are numerous.
Mobile network operators (MNOs) have the potential to reach a large number of customers through extensive physical and virtual networks at a low cost. MNOs can control a wide range of communication channels that are able to support promotions, sales and enrolment in insurance policies. In this way, MNOs are able to enhance the way claims handling and customer service is executed by the insurance companies in order to deliver more value to the customer.
African financial services markets are trailblazing in their proliferation of digital distribution of products. While mobile access makes insurance products more accessible to Africa's masses, the other key ingredient is financial education, to increase understanding of insurance and encourage sound money management.
As financially astute individuals, actuaries have much to contribute to financial education initiatives that will improve consumer knowledge and help drive insurance penetration in Africa.
Business models that may have worked in more mature markets cannot be replicated in Africa's fast-growing economies, which require new strategies for success.
Tavaziva Madzinga is an actuary and chief operating officer of Old Mutual Africa, responsible for operations across eight African countries