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Introduction
The landscape of the insurance industry in Africa has gone through profound
changes in the last four decades. For instance:
* In the 1960s, a combination of liberal legislation, a favourable economic climate
and the emphasis by UNCTAD on the importance of insurance in national economies led
to the rapid establishment of national markets with the creation of local companies with
public/private shareholding and foreign participation.
* The 1972 UNCTAD resolutions encouraged States to set up local insurance and
reinsurance companies. All over Africa, local companies were registered in line with
these resolutions. In a number of cases (22 States), monopolies were established.
* The economic recession that started around 1980 in many African countries, and
which lasted for more than fifteen years, led to a stream of failures in most regulated
economies. The downturn had its effect on free markets as well. Structural adjustment
programmes were introduced to combat these economic problems, leading to market
liberalization and the privatization of public enterprises, including well-managed firms.
The insurance sector was not spared from the general trend leading to the establishment
of new private companies. Swaziland is the only country left on the continent with a
government monopoly, though this situation may not endure for much longer.
* While some national insurers and reinsurers such as Reinsurance Company of
Mauritius (RCM) and Caisse Nationale de Rassurance, Cameroon, have been liquidated,
a few are in the process of privatization.
The General Agreement on Trade in Services (GATS) has put pressure on national
Governments to open up their insurance sectors to foreign operators and give them equal
market access. In this regard, the African Insurance industry finds itself at a crossroad,
with only 13 out of 41 WTO members making a commitment to comply, at least in part,
with the Agreement.
This modest contribution to current studies aimed at achieving further progress in
GATS negotiations on insurance services will focus on the following areas:
* Features of the African insurance market;
* Africa Re corporate profile and financial highlights;
* The challenges ahead for insurance services in Africa.
Characteristics of African markets
Direct market
In 1998, there were 580 companies in the industry in Africa, including 157 in
Nigeria, 120 in South Africa and 41 in Kenya. In 2004, the number of Nigerian
companies fell to 110, bringing the number of companies in the continent to about 550.
It should be noted that in the past few years a number of new companies have been
formed in East Africa with the liberalization of the Ethiopian, Mozambican, Tanzanian
and Zambian markets.
As our objective is to analyse the behaviour of the African insurance market from
the point of view of globalization as compared to other regions of the world, a
comparison of their respective sizes would be instructive. The comparison is shown in
tables 1 to 5 below.
Table 1. Evolution of market shares in the world (in millions of US$)
Table 2. Details of the Market Share of Africa in 2004 (in million US$)
Africas share of the world insurance market was 1.16 per cent with South Africas
income making up 82 per cent of the continents premium production (tables 1 and 2).
Moreover, 41 African countries represent only 4 per cent of 1.16 per cent, i.e 0.046 per
cent of the world premium. From these figures, it is obvious that the insurance industry in
Africa will need a special treatment within the GATS for several years.
The reinsurance market
There are two major markets in the reinsurance subsector, namely North Africa and
South
Africa, as may be noted in tables 4 to 6.
Some 31.5 per cent of Egypt Res business is non-Egyptian income. What makes up
the non-Egyptian market is not readily available.
SCR income for 2004 is not readily available. We have used 2003 figures adjusted
by 5 per cent to arrive at 2004 premium income. The foreign element is 4.77 per cent of
the income. An estimate of $12.583 is assumed as foreign business for 2004.
Profile of Africa Re
The African Reinsurance Corporation was set up on 24 February 1976 with the aim
of assisting in fostering the development of Insurance and Reinsurance activities within
the continent.
Africa Res Gross Premium Income in 2004 was $299.07 million. Africa Re South
Africa (including run-offs handled by the Nairobi office) was responsible for 49.12 per
cent of the figure. The Corporation ranks (47) among the world top 50 reinsurers in term
of net premium income (264 million).
It is the desire of Africa Re to maximize incoming emanating form voluntary
cessions. While in 1989, the 5 per cent legal cession on treaties from African markets
yielded 67.8 per cent, in 2004 it dropped to 11.19 per cent, due to intensive marketing
drive and better acceptability of the Institution security which is rated BBB+ by Standard
& Poors and A by AM Best Europe. If not for the weak sovereign ratings of the African
economies, Africa Re could have achieved better assessment, as these rating agencies link
commercial ratings to the sovereign one of countries where reinsurance companies
operate and/or originate from.
Table 9 (millions of US$)
per cent of its income emanating from this type of cession, Africa Re is brassing up to the
abolition of this privilege in the not to distant future. The removal of these cessions may
threaten the operations of some of these reinsurers.
Localization of insurance of imported goods
This remains a legal requirement in several African countries. Its phasing out may
lead to a loss of a big chunk of premium volume, thus leading to a crises in this class.
Delocalization of risks
Globalization is expected to increase the number of risk delocalizations in respect of
multinationals (mega risks) and Life/Health covers. These risks shall be directly insured
abroad, due the small size of many operators, the sophistication of these products and the
existence of global insurance covers purchased by the Head Offices of these
multinationals, thus depraving the African Insurance sector of meaningful source of
business.
Possible outflow of foreign currency
It is normal for a foreign insurer established in a given country to repatriate its
profit. Moreover, consumers may also settle insurance premiums to insurers based
outside their country in convertible currencies
Offer of new/modern products by foreign insurers established in the country
Although this is part of the tools of competition, it is however singled out as it
constitutes a major issue for developing markets as foreign insurers provide a full range
of products which compete with often obsolete products in the market.
The way forward
Consolidation
In several countries, liberalization of markets is still in its infancy. In due time,
however, the critical stage will be reached where consolidations would take place to
ensure the overall efficiency of the system.
Markets with relatively long experience of deregulation, such as South Africa,
Morocco, and the CIMA zone have already started to witness consolidation. From early
2007, the minimum capital requirement for a composite insurer and a reinsurer operating
in Nigeria would be $37.5 million and $75 million respectively. This would force a
number of companies into consolidation, which may further reduce the number of
operators from 110 to a maximum of 30.
Consolidation among local operators as well as companies operating in the same
region should be encouraged, as it will build a strong regional capacity. Regional coinsurance, which is already practiced in the CIMA zone, could also be introduced in other
regions. Regional cooperation
The level of cooperation between the developed and developing parts of Africa, as
regards insurance, is still low. Increased interaction of the very developed South African
insurance sector with the other markets in the continent would definitely assist subSaharan Africa and, to a lesser extent, North Africa in improving the skills of their
various markets, especially in the following are: regulation and supervision, manpower
development and product development in life assurance, terrorism and sabotage
insurance, agricultural insurance etc.
Regulation and supervision
Effective and autonomous Supervisory Authorities coupled with an update of
Insurance laws to reflect the modernity of our time, are necessary to check the negative
effects of and adjust the inevitable globalization in Africa. The South African model has
proved to be efficient in that respect. Moreover, an interactive rating at an affordable
price such as that provided by the African Insurance Organization, in partnership with a
reputable agency, would assist African operators in improving their reputation and
acceptability of their security/credibility, as well in the competition field against wellknown foreign names with subsidiaries in Africa.
Manpower development
This is a very effective means to prepare local insurers against the threat of
globalization. There is an urgent need to assess the requirements of the industry
(Supervisory authorities, Companies, Brokers, Actuaries, Surveyors and Adjusters).
However, it must be stated that the setting up of an African College of Actuarial Sciences
is imperative. The training of reinsurance underwriters and the setting up of centres for
Catastrophe modelling and Risk Management must also be considered as an urgent task.
IT development
The realization of the AIO project relating to insurance software packages will
greatly contribute to the efficiency of small/medium size local insurance operators vis-vis their foreign competitors.
Product development
Life assurance
As evidenced in table 3, the growth of Life Assurance should be given an urgent
priority in Africa hence the support given by the AIO to this class of business is most
welcome. Supervisory Authorities should disallow Life/Accident/Health covers given
from abroad by way of the Internet or via foreign intermediaries, in order to assist in
developing this class of business which is the best conduit in mobilizing long-term
investment to finance economic development
Terrorism and sabotage
This type of insurance needs cross-border cooperation within Africa in view of the
volume of capital needed for an adequate cover.
A pool or a fund should be established in Africa with the possible technical
assistance of SASRIA of South Africa, which has been one of the first joint initiative of
Government and business community (insurance industry) to address the
financial/economic consequences of terrorist attacks in the world. An alternative would
be the extension of the activity of the African Trade Insurance Agency (ATI) to cover
terrorism and sabotage in the entire continent, as it is the case in United States (TRIA)
and Europe (e.g. Pool Re in the United Kingdom, GARET in France).
Agricultural insurance
This is another area that needs regional/international cooperation, and which should
be free of regulatory restrictions in Africa, on the condition that the Insurers willing to
provide the guarantee to farmers are well known in the international market.
Conclusion
The challenges facing insurance services in Africa in view of the threat of
globalization are enormous. Inasmuch as competition should foster a more efficient
system, in Africa there is a dire need to ensure not only that consumers are adequately
protected, but also that local operators are not wiped out. This is the paradox that we face
today in most parts of Africa. In this paper, we have presented a picture of an African
insurance market that has both opportunities and threats as it tries to come to terms with
the modern age of globalization and liberalization. We have also made some suggestions
on the way forward, with specific examples that we believe will help the industry to
mature and at the same time benefit from the gains of globalization. We hope to have
contributed albeit modestly to develop the insurance awareness and the dissemination of
the information on our continental industry.
http://tradeinservices.mofcom.gov.cn/f/2007-11-28/13476.shtml