In Africa, the Future of Insurance Is Micro and Mobile

Friday, May 15, 2015

Telecoms companies are redefining Africa’s insurance landscape, using their brand recognition and wide customer reach to offer micro-insurance products to the tens of millions of uninsured Africans.

The continent’s largest mobile telephone network operators, such as Airtel, Safaricom, Tigo, MTN and Vodacom, are battling it out to attract new customers through innovative business models that rival the traditional premium payments system popular in the West.

“Mobile telephones have huge potential to completely revolutionise the insurance sector, and that step change has already begun,” explains Samuel Kiruthu, chairman of Kenyan telecoms firm Cellulant.

“The possibilities are enormous. It’s just that you need a very dynamic and innovative insurance business to exploit this space. It’s the firms that move fast that will really succeed.”

Low penetration

Africa has an insurance penetration rate (measured as premiums as a share of gross domestic product) of only 3.5%, according to reinsurer Swiss Re, which is far below the global average of 6.3%.

However, the continent’s insurance heartland, South Africa, is second only in the world to Taiwan with 15.4%. If this outlier is discounted, the continent’s insurance penetration rate tumbles to under 1%.

Meanwhile, mobile phone penetration is soaring, with around 65% of sub-Saharan African households owning a mobile phone, and this number is set to rise to 79% in 2020, according to market research group Frost & Sullivan.

When Safaricom first rolled out M-Pesa in Kenya in March 2007, few predicted its stellar growth or the impact it would have on the financial landscape across the continent.

Attracting just 20,000 customers in its first year, the mobile-money payment system, which allows telephones to be used to send and receive payments, has ballooned to more than 20 million users today, with more than KSh1.8bn ($19.7m) transferred daily across the network.

Boston Consulting Group predicts that by 2019 mobile payments across sub-Saharan Africa will generate some $1.5bn in fees each year for mobile-money providers.

Source: The Africa Report (link opens in a new window)

digital payments, telecommunications