One cannot shy away from the fact that in some African countries there is abject poverty in the midst of plenty. I recall images of some of us in our undergraduate years in Africa, though some fared better than others pictures of us bare-chested could pass for those of prisoners of war and these were children from families that could afford tertiary education in those days.
Ever wondered if a good number of people in those countries purchase insurance cover any kind?
Insurance professionals in this region will attest to the fact that insurance is a thriving business. According to the Africa report, in 2012, 22 of the top 500 companies in Africa were insurance organizations. Running a business as unique as insurance in the region however poses quite a few challenges.
Firstly the problem of high unemployment with its resultant socio-economic consequences is a constant worry to insurers as both young and old move to cities in search of work. Of course when able-bodied individuals whether in rich or impoverished countries are not able to find work and earn a living legitimately, the not so strong-willed succumb to the temptation of crime. I once witnessed workers of a multinational construction company turn a blind eye to hoodlums carting away valuable cables in broad daylight in a sub-Saharan country. As is usually the case big firms like the one these workers represent not only have skilled personnel negotiating their insurance claims but also have a 'powerful' broker managing its accounts. A few more incidences of this nature in a day across the country and similar occurrences in other establishment swells the claims bill of the individual insurers and ultimately the local market and the re-insurers react.
Health and safety is taken seriously mostly by established firms and multinationals but some of these company do not maintain the same high standards they are known for across the globe. Cases of employees and locals being paid hefty compensation are commonplace with insurers picking up the numerous liability bills.
Poor planning or refusal to plan also leads to occasional flooding during rainy season in the parts that experience heavy seasonal rainfall as the open drains (where they exist) are left filled with rubbish. Insurers are thus left with huge costs associated with the resultant flood.
The stagnant water in the blocked open drains become breeding ground for mosquitoes the carrier of malaria parasites. According to a World Health Organization report, in 2012, malaria killed an estimated 482 000 children under five years of age. That is 1300 children every day, or one child almost every minute and in general within the same period 90% of all malaria deaths from malaria occurred in sub-Saharan Africa.
The huge financial cost of the perennial malaria fever appears not to have hit home with authorities in the region. It should however worry employers, health and life insurers because of huge loss of productive hours when an employee is off work due to the illness or to tend to member(s) of his/her household suffering malaria fever and in worst cases- death.
In motor vehicle insurance, there is the huge problem of uninsured drivers added to this is the existence of fake motor insurance certificates and as if that is not enough for an underwriter to contend with, some of the cities are populated by drivers who do not know the rules of the road and of course there is the issue of roads that are not remotely pedestrian friendly. The result is increased road traffic accident frequency and severity.
While in Europe an individual planning to buy a car will consider the value of the car, the cost of maintenance i.e. replacement parts vis-à-vis the cost of insurance, fuel and possibly road tax etc., the riches in regions in Africa as well as in some cases subsidized prices of fuel means one can readily spot latest models of top of the range cars in cities of these supposedly impoverished countries. Ordinarily this sort of lavish spending should then ensure that volume/value of risk on offer would yield premium income that guarantees profitability for the motor insurance market. On the contrary, it takes the shrewdest of underwriters to profit from this or any class of business for that matter in these economies.
Regrettably Kidnap and Ransom issues readily come to mind when with any talk of venturing into regions like Africa.
It's not all gloom though, some of these regions as pointed out earlier boast of enormous wealth. From mineral resources, oil and gas reserves to rich soil and arable land, unfortunately the region's wealth end up in the hands of a few.
For companies bold enough to venture either into insurance business in the region, with the right personnel, attitude and approach, there are rewards.South Africa has the region's most developed insurance sector and they have taken the lead in expanding into the regions such as sub-Saharan Africa.
In a published report by Pricewaterhousecoopers (PwC), a survey of CEOs of local insurers revealed that Africa has become the most desired destination for geographic expansion. "The top three considerations for South African insurers moving into sub-Saharan Africa are: low penetration rates, higher margins and profitability, and the quality of local management," PwC said.
Another positive is that the region is not into the claim culture (yet) that the US has become known for and which is picking up speed in Europe. This is partly due to lack of awareness and the state of the legal system in some of these countries. However without the appropriate clauses in relevant liability policies, multinational could be hit with copycat
law suits.
The idea of exploiting the insurance potential of economies perceived as filled with starving kids may seem abominable but entrepreneurs and overseas investors only need to look closer to discover that some are truly emerging markets. The questions therefore is, how soon before companies and entrepreneurs outside Africa start to ride the tail of the trail blazers?
Ikenna Nwabueze, an associate member of the Chartered Institute of London is the founder of Insurance Discovery [ http://insurancediscovery.blogspot.com/ ] a site dedicated solely to publishing helpful tips on insurance.
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