USD 647m
worth of micro-insurance premiums
5,4%
of the african population covered
61.9 millions
people insured
THE INTANGIBLE CHARACTER OF INSURANCE OBSCURES ITS ROLE IN ECONOMIC DEVELOPMENT. YET INSURANCE STIMULATES GROWTH, INCREASES THE RESILIENCE OF HOUSEHOLDS AND LOCAL ECONOMIES AND FAVOURS REDISTRIBUTION. PAID OVER INSURANCE PREMIUMS STIMULATE FINANCIAL ACTIVITY WHEN REINVESTED. ACHIEVING AFRICA’S INSURANCE POTENTIAL REQUIRES THE BIG PLAYERS IN THE SECTOR TO STEP UP TO THE CHALLENGE, ADAPTING THEIR PRODUCTS AND DISTRIBUTION CHANNELS TO THE CHARACTERISTICS OF LOCAL MARKETS.

Insurance is based on a simple principle: paying a defined sum today to cover a risk that may or may not materialize tomorrow. However, insurance has always existed in some form. Today it is offered by traditional organizations, private companies and public authorities. 

In Africa, traditional ‘self-insurance’ tools are designed to collectively transfer and manage risks, often taking the form of community savings supervised by a ‘wise’ person, or more complex hierarchical and social arrangements. Pooling risks and resources to help people through tough times is very common in Africa.

Apart from tontines, other non-profit, membership-based schemes such as burial societies in South Africa or iddirs for Ethiopian smallholder farmers pool risks among people with no access to formal insurance.

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PRO_ASSURANCE
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Insurance as a vector for stability and solidarity between individuals
Insurance is also a source of stability and resilience to random shocks for local economies and households. It allows them, for example, to protect themselves against natural disasters by transferring risks to insurance companies and subsequently to financial markets. Insurance is also a powerful vector for distribution and solidarity between people and generations, through pooling and aggregating risks. Insurance restores a form of equality between policyholders. Once they have paid a premium, what matters is the risk they face, and not their income, education or social status.

As a result, at the macroeconomic level, the insurance sector contributes to national income through the creation of added value. Measuring this contribution remains complex and multifactorial from both a qualitative and a quantitative point of view. But domestic demand is growing, largely sustained by the demographic vitality of Africa and the emergence of the middle classes, estimated at 350 million people across the continent.
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ACTIVA – CONFIDENCE IN THE IMPACT OF INSURANCE
Created in Cameroon in 1998, Activa has become a major insurer (life and non-life) in sub-Saharan Africa. Activa is present in seven African countries today. Twenty years ago, the founder and current CEO, Richard Lowe, was already aware of the market’s potential. In 2014, Activa achieved annual consolidated revenue of CFA 23bn in Cameroon (around €35m), becoming the country’s second largest insurance company. For Lowe, Activa’s success is rooted in an African ambition, aiming to ensure that “Africans are able, in such a competitive sector, to unabashedly work to international standards”. This success is supported by Proparco, which has pledged to invest €10m in Activa’s equity to support its development in sub-Saharan Africa, including the DRC.

After a long period of focusing on international corporations, Activa has recognized the importance of targeting populations with no history of coverage, particularly in rural areas. To reach this agricultural population – 70% of the population in Cameroon lives on the land (Swiss Re) – the company offers a product covering livestock mortality risk. Activa has recently been developing agricultural insurance, which is practically non-existent across the continent, to deal with climate risks. Activa also offers micro-insurance services to the poorest members of society, who are a particular target. For Richard Lowe, “This means creating products that are compatible with the purchasing power of these very low-income populations”. Activa has become a micro-insurance pioneer in the Cameroonian market. Activa Makala, a micro-insurance policy marketed by mobile phone via the Orange money service, was launched in December 2015 in partnership with the telecom operator Orange. For 0.91 or 1.52 euros per month (600 or 1,000 CFA francs) depending on the package selected, the insured are covered against personal and business accidents affecting their sources of income. Activa is aiming for this innovative service to reach 30,000 subscribers in 2016 and 2017, after which it plans to double its objectives in 2018.
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An effective growth driver
Moving from these informal community- based ‘insurance’ systems to formal individual ones clearly has a positive impact on economic development: it contributes to the growth and stability of economies, and to pooling and mutualization between individuals (see diagram). This growth-driving effect can be analysed in two ways: firstly, through the vital role of insurance payouts in the event of a risk occurring, and secondly, via the insurer’s role as an institutional investor linked to the technical reserves accumulated for the payment of future insurance claims. The insurance premiums received are reinvested in the local economy in the form of government bonds, corporate bonds and equities, transforming short-term savings into long-term savings favourable to the development of the local economy. Several research papers have highlighted the correlation between the insurance penetration rate and GDP growth.

Analysing 77 advanced and emerging economies between 1994 and 2005, Ha et al. (2010) found that a 1% increase in total insurance penetration led to an annual 4.8% increase in economic growth (versus a 1.7% increase when only life insurance is considered). Low levels of economic development and a fragile economy with little transparency are typically associated with low insurance penetration, while informal and traditional self-insurance mechanisms are not easily quantifiable. In contrast, when GDP per capita reaches levels of around US$ 3,000–5,000, insurance penetration rises faster than GDP until the market reaches a plateau.

Two major factors explain this relationship. First of all, insurance makes it possible for individuals to take risk-related decisions that are greater than those each individual could bear on their own, e.g. creating a company, building a large infrastructure or a factory, developing a new technology, etc. Once such risks start to be covered, the associated peace of mind allows households to take ‘productivity- enhancing’ decisions and invest for the longer term, e.g., begin to use fertilizers, send a child to school, buy preventive equipment against malaria. Second of all, insurance also has an impact on the decline in interest rates and the lengthening of credit maturities. By insuring firms and households against property loss, damage and loan repayment difficulties, insurance helps lower credit risk.
phases
1

Source of growth


Enables risk-taking. Positively impacts interest rates, credit supply and financing terms and conditions.

2

Source of stability


In economic terms: smooths income patterns and facilitates disaster recovery. In financial terms: long-term focus.

3

Source of redistribution


Pooling and mutualization: spreads risks between generations and between individuals.

3 questions to Richard Lowe