Insurance companies are struggling to gain a foothold in Africa, where populations tend to favour community insurance schemes called tontines. These are often informal agreements between trusted friends and family members. EURACTIV France reports.
Insurance is overwhelmingly an issue for rich countries. This does not seem likely to change, as 80% of the world’s insurance policies are held by the richest 10% of the population.
“Insurance is quite a new thing in Africa”, said Claude Fischer-Herzog, Director of Confrontations Europe.
“For Africans, insurance remains an elitist product”, said Hermann Kouassi, Executive Director of the Economic and Business Club of the Diaspora (CEADI). “And the fear of fraud is very strong, and often justified,” he added.
Less Elitist alternatives
But insurance, and particularly micro-insurance, has an important role to play in the economic progress of the developing world.
Micro-insurance, which is a form of protection against threats to the lives and livelihoods of low-income people in developing countries, represents a potentially vast market in Africa.
“In western and central Africa, 700,000 people hold micro-insurance policies that cost just €1 per year and guarantee their capital in the case of their death,” Frédéric Baccelli, Director General of Allianz Africa, explained.
“Insurance can secure a country’s economic growth against threats posed by the climate, for example,” said Jérémy Brault from Proparco, the branch of the French Development Agency specialising in private sector finance. “At Proparco, we have made insurance one of our target sectors.”
Tontines dominate the market
The insurance solution favoured by most communities in Africa is the “informal” tontine system. On the margins of traditional banking and insurance activities, tontines allow communities of individuals to save between friends, members of the same family or a community. “Tontines account for an important proportion of the African insurance market,” said Jérémy Brault.
Traditional insurance providers will have to adapt their products in order to seduce distrustful and often disadvantaged customers. “There is no question of applying the very individualised western models in Africa, where the prevailing model is one of intergenerational solidarity,” he explained.
But the rise of the middle classes in Africa could give the insurance sector a boost. “In Ivory Coast, for example, a more individualistic middle class is emerging, within which people will be more forward-looking”, Hermann Kouassi said.
Small share of the market
For now, the African insurance market is a relative lightweight, worth $72 billion in 2013. Frédéric Baccelli said “The insurance market in Africa is smaller than the turnover of Allianz in France”.
South Africa holds 80% of the continent’s insurance policies. The Maghreb countries account for 10% of the market, notably Morocco and Algeria, and the final 10% is spread across the rest of the continent.
Towards a single market?
Work has already begun on an African insurance single market. The Inter-African Conference of Insurance Markets (CIMA) is a group of 14 West African countries, including Cameroon, Central African Republic, Ivory Coast, Mali and Senegal.
Formed in 1992, this organisation unites the markets of its member countries by applying common codes of practice and a single supervisory authority. In 2013, the 163 companies in this embryonic single market had a combined turnover of $1.4 billion.
Frédéric Baccelli said “the annual growth of CIMA is around 7.8%. This is actually fairly low in relation to population and GDP growth in this region”.
The slow development of the insurance single market is partly down to CIMA’s restrictive regulations, according to Frédéric Baccelli: “For example, insurers have to reinvest 50% of their assets in countries of the CIMA zone, which limits their ability to make pan-African investments.”