Insurance Technology (InsurTech) is swiftly gaining much-deserved traction in Africa, as it has long remained in the shadows of other lucrative sectors.
This is despite its significance as a major contributor to the continent’s economic development which cannot be undermined. Africa is steadily emerging as a potential insurtech hotspot for startups.
In 2020, the African insurance market reached a value of US$70 billion, with a projected compound annual growth rate (CAGRs) of around 7% between 2021 and 2025, according to McKinsey and Company. This is nearly twice as fast as North America, over three times that of Europe and better than Asia’s 6%; positioning the continent as the second-fastest growing region for insurance globally, coming in only after Latin America.
To boot, Africa’s total insurance premium volume increased to US$68.15 billion in 2019 from US$ 65.2 billion in 2017. Insurance companies are transitioning from a traditional way of offering insurance, to digital distribution channels, markedly disrupting the traditional landscape. Technology has ushered in a new era of digital products and services; ripening Africa’s insurance space for disruption, and designing platforms that are making life easier for insurers.
Insurtech is emerging as a major force shaping the structure of financial services across Sub-Saharan Africa; proving to be an integral enabler of bolstering financial inclusion. McKinsey highlights six ‘primary insurance regions in Africa; Francophone, Anglophone West Africa, Southern Africa, North Africa, East Africa and Angola. South Africa boasts the largest and most established insurance market, accounting for 70% of total premiums; followed by Morocco, Kenya, Egypt and Nigeria.
Undoubtedly, the Covid-19 pandemic has accelerated the shift towards digitalization, which McKinsey poses as a promising trend, for augmenting insurance distribution. This has driven the rising demand for digital insurance products and solutions, in tandem with the snowballing of insurtech startups to innovate solutions to seal the gap. The McKinsey’s Financial Insights Pulse Survey ascertains that indeed, the Covid-19 pandemic largely induced the shift towards digitalization.
Findings from the Covid-19 Fintech Regulatory Survey, conducted by the Cambridge Centre for Alternative Finance (CCAF), indicate that insurtechs across Sub-Saharan Africa, recorded a 19% growth in customers, a 6% increase in transactions and 40 % of firms launched new products during the pandemic. However, prior to the pandemic, Statista data deduces that insurtech was still booming, taking off in several African marketplaces.
In 2020 the global insurtech market was valued at more than $2.7B, with a projected CAGR of 48% between 2021 and 2028. Insurtech companies have disrupted the insurance industry, by leveraging artificial intelligence and data science, to offer an improved user experience at more affordable prices. Insurtech firms have swooshed in to capitalize on the emerging opportunities, rolling out new products and technologies while at it.
Indeed, the market has been facing major transformation fueled by the dynamic nature of clients’ preferences. Digital insurance technologies offered by insurtechs have assisted insurers to create unique products; moving speedily to offer platforms with a key objective of simplifying, digitizing and expanding the industry to penetrate deeper into the African market.
Categorized across three sub-components; life insurance, non-life insurance and reinsurance, the sector is recording massive growth in the continent. Life insurance includes pensions and savings; whereas non-life insurance includes transport, property and trade insurance. Among the steps recommended by PwC for insurers to remain relevant in the commercial market, is improving customer experience with digital interaction.
A recent study by Deloitte reveals that the most popular products and services offered by insurtechs include; peer-to-peer (P2P), on-demand and index insurance. In tandem, covers that greatly appeal to many customers in Africa are usage-based products; such as auto insurance, gig economy, fleet-based businesses and agriculture. Insurtechs additionally offer Microinsurance, which is basically inclusive insurance, targeted for low-income people against specific risks in exchange for regular payment premiums, ultimately amounting to the cost of the risk at hand.
Insurtech firms shaping Africa’s insurance scene
ETAP, a renowned Insurtech startup based in Nigeria that eases the process of buying and claiming insurance, has recently secured US$1.5M pre-seed funding, to drive car insurance penetration in Africa. The pre-seed funding round was led by Mobility 54, a Venture Capital arm of Toyota Tsusho and CFAO Group. Other investors such as Tangerine Insurance, Newmont and Graph Ventures also participated, coupled with other angel investors. The funding is projected to be used to grow its team and drive the adoption of its car insurance options across Africa.
ETAP uses machine learning to build intelligent risk profiles that determine appropriate premiums for each driver, allowing them to achieve lower premiums by driving safely. It utilizes advanced telematics, where the driving experience is gamified and improves driving, whereby drivers can earn safe driving points, which can be exchanged for shopping vouchers for the most in-demand retail outlets. Drivers also enjoy flexibility on coverage options, including annual plans.
Kenya-based Pula is another distinguished insurtech making waves in the continent. It provides small scale farmers with agricultural insurance and digital products, to help mitigate the risk of enduring extreme conditions; assisting small-scale holder farmers to navigate climate risks, improve their farming techniques and boost their revenues. Since its inception in 2015, Pula has impacted 4.3 million farmers across 13 African markets.
Furthermore, the firm has managed to raise a total of US$6million from global venture capital backers for Africa and Asia expansion. Pula won the ‘Insurtech of the year’ award at the African Insurance Awards. Its growth has enabled it to partner with the World Food Programme, to insure 3.5 million farmers across 10 African countries.
Into the bargain, Kenya’s Lami Technologies is another acclaimed insurtech company that recently received US$1.8 million pre-seed; with the round led by Accion Venture Lab, AAIC, Future Africa, among others. The company projects to use the seed investment to hire more people, improve its technology and grow its presence across Africa.
South Africa’s Pineapple, which is a P2P decentralized insurer that gives members fully indemnified insurance coverage; is also renowned in the continent and so is Holland Insurance, which sells car, business, house and funeral insurance. Another leading insurtech company is Octamile, which has recently received pre-seed funding of $500,000 led by EchoVC, with participation from Fiat Venture, Kesho VCs, Trade X and other local and international angels.
Advantages of InsurTech adoption in Africa
Inarguably, the insurance sector is key to Africa’s development. This is projected to be more profitable with the adoption of insurtech, as a key component of the fourth industrial revolution. Insurance is an important way to protect your financial future, it’s paramount for all Africans to be insured.
Given that the new generation demands new and more personalized products, insurtech caters to this need, which is also shared by SMEs, as they require more insurance options; by inculcating artificial intelligence which analyzes data, making former models to keep developing and combining them with new products.
By the same token, insurtech helps insurance companies lower costs, thereby saving time and money, as the processes are faster and more accurate. Companies that adopt insurtech, remain more competitive in the insurance market, making them a preferred choice for many individuals and organizations alike.
Insurtechs offer a one-stop-shop digital solution for customers’ insurance needs; enabling them to be tailored to their own health, finances, lifestyle and personal priorities, therefore making pricing more competitive. Insurtech helps customers process and settle their claims faster and more seamlessly. Furthermore, they merge disparate policies and products, avails easy to use platforms such as mobile apps, pivots away from paperwork and instead uses online forms and digital signatures to ease the process.
Roadblocks and plausible solutions
A plethora of challenges facing effective insurtech integration needs to be solved. The sector has remained resilient, acclimatizing to the dynamic technological advancements and transformation. According to Brookings, Africa’s insurance market is highly fragmented and maintains inconsistent distribution among countries.91 per cent of insurance premiums are concentrated in just ten countries led by South Africa.
African insurers have been alarmed over the growing levels of education and financial literacy that have been a major impediment to insurtechs in the continent; coupled with gaps in technical infrastructure. To address literacy levels, significant awareness needs to be created regarding the associated benefits of being insured. This is bound to create lucrative opportunities for the market players.
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The future of the African insurance market looks promising and more saturated. There is real potential to increase cost efficiencies and profit margins, which are predicted to be enormous. Deeper internet penetration, growing working population and technological advancements are some of the factors that have been catalyzing the growth of the insurance sector in Africa. The mobile penetration rate is steadily growing, providing a vital platform for the digital expansion of financial services across Sub-Saharan Africa; bolstered by a growing tech-savvy population, micropayment services and an increase in usage-based products.
Currently, plans are in motion by the Financial Sector Deepening (FSD) Africa, to launch insurtech accelerator programmes in several African nations, to help develop the space. Ghana and Nigeria have been picked as the first countries to benefit, with a perspective that it will drive innovation and bolster the adoption of insurance in the two markets, paving way for others. Findings from the Deloitte report reveal that insurtech has the capability to speed up the time to market for new products, reduce the cost of service and unlock markets which were previously perceived to be unviable.
FSD Africa has remained steadfast in its commitment to grow the insurance sector and groom the next generation of insurance innovators. Moreover, the firm is working to generate capital via venture funds and grants to early-stage insurtech startups; as well as setting up an online platform where founders can collaborate, communicate and form partnerships, whilst accessing technical support from a range of industry-leading sources.
The organization is currently collaborating with several insurance regulators; in Ghana, Rwanda, Malawi, Nigeria and Tanzania, to create an ecosystem that supports the growth of insurtechs in Africa.