Editor’s Note: For this article, East Africa includes Burundi, Ethiopia, Kenya, Rwanda, South Sudan, Sudan, and Tanzania


“Make sure it is locked because once it is stolen, my insurance likely will not cover it.” That was Safi’s statement to me as we stepped out of his warehouse & office in downtown Dar es Salaam. The deposition is a familiar one to business owners in East Africa. Apprehensive of the commercial and political risks, insurance companies have generally avoided extending credit to most African companies. But change is on the horizon. The region’s insurance brokers are promising greater returns as they expand their business. Their aspirations align with the eye-grabbing growth numbers coming out of the region. Still the costs of developing networks of brokers and branches and investing in growth means patience in waiting for returns.

The chief attraction of East Africa’s insurance market is that it is sizeable and practically untapped. The insurance penetration rate among East Africa’s nearly 270 million inhabitants hovers between 0.2 and 4.0 percent in each country. In Ethiopia and Tanzania, a tiny percentage have access to insurance such that penetration rates do not surpass 2.5 percent of GDP. These rates barely compare to the 16 percent observed in South Africa. In Uganda, the cost of a letter of credit can be exorbitant: up to 7 percent of the amount of a sale compared with as little as 0.5 percent in Europe.

The unimaginable rates are a result of years of constant political turmoil and economic efficiency. Negative perceptions of the Africa’s outlook scared investors. Insuring against famines, political protests, unpredictable inflation and sometimes plain hardheadedness, says a Tanzanian government insider, is not possible. But political stability and stable growth bids well for the region. The performance of the insurance industry highly depends on the performance of the economy. Industry insiders anticipate the region could see growth in the range of 15 to 20 percent on the back of robust economic growth in almost all of the markets. The benefit of this growth is definitely not even. More than 70 percent of non-life insurance in Ethiopia and Tanzania are purchased by companies with headquarters in Addis Ababa and Dar es Salaam respectively. Similar trends are found in Uganda and Kenya.

Premium growth will play a major role in the growth of the entire sector as premiums will potentially grow more than 15 percent in certain markets. Premium growth is great for returns, says one pan-African investor, but growth in clientele possesses greater potential as East Africa’s consumer class emerges. Compulsory insurance provisions, in countries such as Kenya and Rwanda, help broaden the base that insurers capture. But such provisions do not help change the negative perceptions that persist in the eyes of investors. African governments can better support the industry through efforts that raise awareness of insurance and educate consumers about the need to purchase adequate risk protection. Furthermore the credit ratings of commercial companies in East Africa are virtually unknown. The lack of adequate bankruptcy laws requires a higher level of familiarity between insurer and insured before any deal can be made.

Potential purchasers of insurance, as Safi describes, do not believe in the insurance industry. Oil and gas companies have access to greater international providers but local consumers barely access credit at double the price and half the benefits. Most studies show that regional premiums would be burden on the most profitable companies in Africa, let alone Europe. Unpaid claims and unpaid premiums further perpetuate the lack of distrust.

Yet the industry is attracting investors seeking to bridge the divide between parties and reap the financial benefits: share growth in Tanzania’s and Uganda’s larger private (non-state) insurance companies has been as high as 40 to 50 percent. Similar growth has escaped East Africa’s more protective markets, such as Ethiopia, but internal statistics show promise. Liberalization certainly could change the prospects for certain countries.

Reducing claim settlement times and bettering client focus is central to any sales agent’s success with pitching clients in the industry. Facilitating access to external credit facilities, for example with the International Finance Corporation (IFC) and the Overseas Private Investment Corporation (OPIC), is part of the assistance foreign investors bring to this industry as many companies struggle to pay claims and build infrastructure simultaneously. The financial statements of the region’s strongest companies reveal a lack of reinvestment in infrastructure as returns are directed to the banking sector or potentially higher yielding instruments. In more restricted markets, such as Ethiopia and Sudan, some companies invest in excess of 75 percent of returns in the banking sector. Improving business in the sector extends beyond capital injections. Network upgrades and expansion elude the region’s strongest insurance players. Software and IT solution companies can help companies on the continent better monitor claims, decrease claim waiting time, centralize products and reduce fraud.

Staff improvements are needed too. Product expansion is necessary to meet the dynamic and changing needs of the region. But many insurance brokers, as Safi explains, do not understand the diverse needs of the companies in the market. Brokers continue to push a one shoe fits all perspective. Regional insurance companies struggle to overcome the lack of management skills and product knowledge in the local talent by developing elite training courses for new staff and hiring outside consultants. These efforts will pay off over time.

The greatest reasons to be optimistic for East Africa are political stability and economic growth. Millions of dollars are being poured into Ethiopia’s agriculture and Tanzania’s gas boom. Kenya’s tech boom draws the attention of local and international investors. Oilfields and infrastructure projects are thriving in South Sudan. The benefits of these investments have yet to be fully realised. Insurers have a role to play in all these sectors. And as the returns flood in and incomes grow, the insurance industry will encounter a growing consumer base.

As the dala-dala (minivan in Tanzania) passes by at nearly 150 kilometers per hour, it is easy to understand why insurance brokers had little clientele ten years ago. But the juice factory it passes gives an insight into the changing nature of the country. It is less about insuring minivans and more about insuring growing companies and Africa’s emerging middle class.



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