Microinsurance could offer insurers the best entry point into Africa’s fast-growing but extremely diverse markets.

Like their peers in other industries, insurers are looking to emerging economies for the new markets and growth that are proving to be elusive in Europe, North America and Japan. With some of the world’s fastest-growing countries on the continent, Africa is emerging as one of the key areas of focus.

Africa, however, does not constitute a single market and insurers need to spend time identifying the characteristics of each country and its various market segments before deciding on which ones to consider. That said, there are enough similarities across many African markets to make some generalisations useful.

The first thing to note is that the concept of insurance is poorly understood in many African markets. This is particularly true in the lower income segments which constitute the bulk of the population. The small and sophisticated elites already understand the concept and have insurance; the growth opportunity lies with the masses.

In the past, African mass markets were relatively unattractive for insurers because disposable incomes were too small to permit people to mitigate risk, and it was too difficult or expensive to reach these consumers using traditional channels. What’s changed over the past few years is the steady growth in incomes at the bottom of the pyramid, and the emergence of new, digital channels.

Big opportunities in small-ticket insurance
Read the report.

Although the average African income remains small compared with those in developed markets—between US$2 and $8 a day—people are now beginning to have enough financial leeway to start purchasing risk-mitigation products. It’s worth mentioning that in the aggregate these consumers at the bottom of the pyramid constitute a substantial market—$160 billion a year in income across Nigeria, Kenya and South Africa alone.

In other words, insurers need to think low value, high volumes—the classic microinsurance (or small-ticket) products.

The real catalyst, though, has been the massive uptake in mobile phones across the continent. Mobile platforms provide the low-cost channel insurers can use, initially to empower agents and, increasingly, to allow for direct distribution.

The table below provides a snapshot of Nigeria, Africa’s most populous country, in terms of the classic insurance indicators.

Next week, I’d like to look at the kind of insurance this market wants—and is buying.

For more information, download Big opportunities in small-ticket insurance.

For more on the opportunities offered by the MINT countries, read the blog by my colleague John Cusano, New frontiers for insurance?

Total premium volume (US$ millions) 1828
Percentage of total world premiums 0.04%
Insurance density (US$ per capita) 10.9
Insurance penetration (premiums as a % of GDP in 2012) .68
Average annual growth in GDP (2014 to 2019) 6.9%
Compound annual growth in population (2013 to 2019) 2.8%
Global ranking by life insurance premium volume 59th
Global ranking by non-life insurance premium volume 55th

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