Insurers in East Africa should brace for more dynamic mergers and acquisitions as competition in the industry undermines the ability of established insurers to raise or even maintain pricing levels, a new report released by Deloitte has indicated.
An influx of new capital flows from sources such as private equity funds and foreign insurers is expected to enhance the overall capacity of the industry thus increasing cut-throat competition.
“This will in-turn kick-start mergers and acquisitions in the short to medium term as insurers seek efficiencies from economies of scale, a phenomena which has already started unfolding over the past two years,” said Thomas Njeru, Director Deloitte East Africa.
The Insurance Sector Outlook for East Africa 2015 released by Deloitte says that capitalization of the insurance industry continues to trend higher, spurring an expansion in insurable exposures, favorable investment performance from the capital markets, the real estate boom and relatively modest disaster losses in the past few years.
There is high insurance demand from infrastructure projects such as the Lamu Port Southern Sudan-Ethiopia Transport (LAPSSET) Corridor, modernization of the railways network, the expansion of power generation, oil and gas exploration as well as the carpeted road network as project managers seek to evaluate, manage and transfer the project risks.
Njeru says that with the rapid expansion of East Africa’s economy, the insurance industry is on a solid footing as demand for both life and non-life products continue to rise as more households join the middle-income class and the market for project risk coverage soars driven by the on-going investment in infrastructural projects across the region.
“With a low penetration rate of insurance and complicated insurance products, experimentation and innovation is called for in terms of insurers engineering products that are more consumer friendly, improving methods of attracting and engaging clients through traditional as well as new channels and more effectively communicating the value of proposition they offer,” he said.
In regard to increasing the low insurance penetration level, the report observes that awareness alone is unlikely to turn the tide. “Overcoming the general public’s lack of awareness and understanding about the role and value of insurance is a key component to improving the penetration rate.
Insurers should also think more creatively about how they market, design and distribute their products, while becoming more customer-centric to excel in an increasingly technology-enabled, self-directed environment, he observed.
More Insurers are likely to explore direct-to-consumer options, particularly to target younger, lower-income, and other underserved segments.
“While many will probably prefer to launch direct platforms on their own, some may choose to explore a partnership with major web-based retailers of call centers to leverage their existing technology platforms and customer relationships,” the report said.
The renewed interest in bancassurance and annuity market are other big opportunities for the industry to grow their balance sheets and present tremendous opportunities to grow the business and make it more profitable and sustainable.
Njeru observes that as the regulators continue to implement the risk-based supervision regime, insurers will need to prioritize strengthening their risk management functions and adopt more strategic risk management approach to deal with potentially disruptive trends and marketplace shifts.