New horizons

In rich nations, insurance companies sell policies that protect clients from the financial impact of almost any kind of risk: accidents, theft, illness and incapac­ity for working. Typically, governmental systems guarantee some kind of pension and universal health coverage. In developing countries and emerging markets, however, the great majority of people lack such protection.

State-run social welfare systems tend to be quite weak in the developing world, and the private sector only offers a limited range of insurances. In Germany, the share of insurance premiums in GDP is 6.7 %. In Mexico, the comparative figure is 2.2 %, in Turkey 1.5 % and in Nigeria a mere 0.6 %.

The reasons for limited supply differ from place to place. Relevant issues include the regulatory environment and the level of economic development. In many countries, moreover, government statistics are unreliable or unavailable, and the lack of data makes it difficult to calculate risks precisely, as insurance companies in advanced economies do. Local companies, moreover, often have not much expertise in product design, marketing them and other business matters. For these reasons, domestic insurance industries remain quite small in developing countries.

International corporations see opportunities however. In November, the French insurance giant AXA stated that it would acquire the majority of shares in Mansard Insurance, a Nigerian company that plays a major role in the domestic market. The AXA management has stated that it is not just interested in Nigerian clients, but intends to raise its profile in the continent.

Other multinational companies are similarly taking note of sub-Saharan econo­mies that have been growing fast in recent years. At the same time, African people are exposed to many risks that may wipe out their livelihoods – floods, lost harvests, diseases, deadly accidents et cetera.

The times are “exciting”, says Michael Bornmann of DEG, the KfW subsidiary that promotes private-sector development, pointing out that the insurance industry is growing faster in developing countries and emerging markets than any­where else. “This is where the most ­important innovations are happening,” Bornmann told at a conference that DEG hosted in Cologne in November. DEG contributes to the trend by providing capital as well as information and promoting standards. DEG was among the investors that had faith in Mansard early on and have now sold their shares to AXA.

Innovative strategies matter. Mansard is marketing the life insurance MTN Y’ello Live in cooperation with Nigeria’s dominant telecom provider MTN. Clients can make claims by mobile phone and do not have to fill in paper forms. In the first year, 500,000 policies were sold – mostly to people who previously did not enjoy insurance protection.

Christian Reber of the Boston Consulting Group sees good growth opportu­nities, especially in emerging markets. He says, however, that national legislation tends to protect domestic companies – for example in the reinsurance sector, that retail insurance companies turn to in order to manage their own risks. To succeed in open competition, Reber says, companies need up-to-date industry expertise and a thorough understanding of the region they operate. He adds that it is essential to meet high standards.

Hope Murera works for ZEP-Re, a Kenyan reinsurance company that is active in several African countries. She is confident to thrive in competition. Her advice is not to rely on market protection but to embrace competitiveness.

In a similar sense, Corneille Karekezi of the Nigeria-based Africa Re, sees scope for domestic companies. One of their strong points, she says, is to assess risks with intuition and their knowledge of the local culture when statistics are insufficient. In her eyes, it has become easy to acquire world-standard expertise, since specialists are willing to fly from London to Lagos even for a single day. Karekezi insists, however, that local insurance know-how must grow.

Anja Strautz