Ending Foreign Insurers’ Domination of Africa

Insurance, reinsurance and insurance brokerage activities from African countries to overseas insurers have become worrisome to sub regional insurers in particular, Nigeria inclusive. Ebere Nwoji in this report anchors the concerns expressed by West African insurers at the 2023 WAICA Conference held in Lagos.

Insurance operators across the West African sub-region and by extension the entire continent are no longer at ease with the huge capital leaving their markets to foreign markets.

Annually, huge capital leave the shores of the regional and sub-regional markets to overseas markets like London and America through reinsurance, brokerage business and underwriting of high -tech and huge ticket businesses due to lack of capacity, technical know-how and lack of reasonable capital.

The development has become so pronounced that African insurers despite size have in most cases acted as agents to overseas insurers.

This has been worsened by lack of confidence on African insurers by owners of big conglomerate and even some government agencies. Their common excuse is lack of adequate financial muscle by African insurers and reinsurers to handle their businesses as well as lack of human capital.

This is happening in Nigeria, in Ghana, Cameroon and even in South Africa as owners of big businesses place condition of reinsurance coverage with big foreign firms like Lloyd’s of London before they can allow African underwriters to handle their business.

Situation in Nigeria

Here in Nigeria, in the past years before the National Insurance Commission (NAICOM) fought for implementation of local content in insurance industry even the federal government owned Nigerian National Petroleum Corporation (NNPC) preferred to give its business to foreign insurers than Nigerian insurers.

The often adduced reason is that all the capital of all the insurance companies in Nigeria put together cannot insure one oil rig of an oil company in Nigeria.

However with increase in capital base of operating firms and implementation of local content law, the situation seems to have abated as at least they allow local insurers insure some parts of their businesses before going abroad.

But currently in aviation insurance in Nigeria, the stigma is still partially there, as airline operators prefer to obey the laws of the land from where they purchase or lease their aircrafts than to obey the local content law of Nigeria.

The airline operators also give reason of high insurance premium rate charged by Nigerian insurers without considering the fact that risk exposure in Nigeria is higher than those of other countries where the premium rates were presumably low. The result is that despite the local content law, some airline operators and oil firms allow Nigerian insurers to pick only the crumbs under the table of foreign insurers in terms of patronage.

Insurers’ Efforts

Against this backdrop, the insurers have over the years been searching for how to be self reliant in reinsurance, broking and underwriting business.

In their search, they discovered that one of the main problems that have been working against them and promoting the business of their foreign counterparts is lack of collaboration among themselves. Because of this, their foreign counterparts often take advantage and have been draining their pockets mainly through foreign reinsurance and brokerage services thus cornering most of the juicy accounts.

Lamenting the problem, the former President of African Insurance Brokers’ Association (AIBA)  Prince Feyisayo Soyewo said  Insurance brokers in Africa have blamed continued capital flight on reinsurance commission from the continent on the inability of it’s over thirty -year-old-body, African Insurance Brokers’ Association (AIBA) to stabilise and serve the purpose of its establishment.

AIBA is body uniting insurance and reinsurance brokers in the African market under the umbrella of African Insurance Organisation.

He said the brokers’ position is that since not many insurance brokers in the continent can strongly compete with their counterparts in the international market as result of lack of capacity, coming as group under AIBA would have provided a united front to compete effectively, but this unfortunately has not been possible.

He said, “It’s sad. It’s a very big shame that after more than 30 years AIBA has not been able to serve that purpose on which it was established by the AIO.”

Soyewo, at one of the AIBA’s conference in Cairo Egypt raised alarm that Africa was losing billions of dollars to international insurance and reinsurance brokers because of lack of capacity, skills and what it takes to deal with big ticket risks. According to him, this is why international brokers continue to operate seamlessly in our market with little or no competition from the indigenous players.

According to him, the challenge before was that most of the AIBA membership were not registered with the African Insurance Organisation but later registered them.

“We are uniting our forces now. If we cannot individually combat, collectively we can form a body that can really have a share of what is generated in Africa. Gradually, we are building capacity and with time we would be in position to increase our retention capacity and also compete effectively with our counterparts in the international market, ”Soyewo stated.

WAICA Conference Steps In

The continued search for ways of recovering their lost markets dominated discussions at the on going West African Insurance Company Association (WAICA) education conference holding  at Eko Hotel Victoria Island, Lagos .Participants at the conference expressed belief that cooperation and collaboration among the sub regional insurers  would  go a long way to strengthen them for optimal performance.

One of the participants Patrick Loweh, Assistant Manager W-Safe Reinsurance Limited, Cameroun speaking on the need for cooperation among the su-regional insurers said one of the take home lessons from the conference was on how the insurers could use rating to develop, reposition themselves for global competition. 

According to him, this indicates that the market was working towards its development towards increasing penetration rate in the sub region. He recommended that insurers across the sub region should strive to practice what they preach. 

“Let’s try as insurance stake holders to practice what we preach. If we come together and make good presentations, we should learn to put the presentations together and develop action plans on how we can develop our noble industry.

“Under cutting is everywhere and it is a huge challenge. If we take the competition at a global scale then we will understand that undercutting is one of the issues that we can actually curb and try to compete with insurance industry in Europe and the world at large, ”he stated.

Also Chief Finance Officer Unique Insurance Company Limited, Accra-North Ghana, Mohamed Adamu said the sub regional insurers needed collaboration to stand strong.

According to him collaboration will enable the sub regional insurers put themselves together and avoid capital flight .He said collaboration would also help them to underwrite big ticket businesses which is flown abroad here. “If the cooperation is there we can put ourselves together to retain our premium here rather than seeking reinsurance strength abroad.

He added, “So we can put ourselves together and stop seeking reinsurance abroad and avoid capital flight which happens when we seek reinsurance abroad. 

“Here in Ghana our regulation says you have to exhaust the local capacity before you cede the rest out. We have a lot of fragmented insurance companies with low capacity because our capital base is very small.So if we are able to  integrate and collaborate more we will be able to build financial muscle and by so doing we will be able to underwrite big ticket transactions then there will not be the need to seek for reinsurance from abroad.”

According to Adamu, this has become necessary because when the insurers seek reinsurance abroad they pay in foreign currency and this affects the  individual country’s economy because here we don’t produce dollar.

FG’s Position

Delivering the key note address at the conference, the Minister of Finance and National Planning, Dr Zainab Ahmed reminded the regional insurers that the founding fathers of WAICA in 1973 created the association for the purpose of improving the image of the insurance industry in West Africa, whilst assisting in establishing an enabling environment for industries and economies by promoting cooperation in every respect amongst all the insurers and reinsurance companies operating in the sub-region.

She also noted that in modern business environment, disruption played an integral part of any business, therefore the 2023 WAICA Educational Conference choice of theme: “Repositioning the Insurance Industry in West Africa for Global Competitiveness.”

at any other time than now.

She informed the insurers that the overarching objective behind the African Continental Free Trade Area (AfCFTA) was  to accelerate intra-African trade by providing a single market for goods and services, facilitate movement of persons in order to deepen the economic integration and prosperity on the Continent as well as boosting Africa’s trading position in the global market by strengthening Africa’s common voice and policy space in global trade negotiations.

She further said the agreement was borne out of the need to establish high quality insurance database to provide a holistic view of the industry’s operations in the sub-region;

as well as the  need for WAICA members to leverage technology and other alternative distribution channels to increase market penetration.

Analysts’ View

Insurance industry analyst Umar Bagus partner in Mac Kinsey’s Johannesburg valued African Insurance market at about $68 billion in terms of Gross Written Premium, positioning it as the eighth largest in the world—although this is not equally distributed across the continent. 

According to him, market within the region are inconsistent in terms of size, mix, growth, and degree of consolidation, with 91 per cent of premiums concentrated in just ten countries. “South Africa, the largest and most established insurance market, accounts for 70 per cent of total premiums. Outside of South Africa, there are six primary insurance regions in Africa. In the Southern Africa region, 54 per cent of premiums are for life insurance. Nonlife insurance, however, plays a larger role in anglophone West Africa, North Africa, East Africa, and even more so in francophone Africa.

“The level of maturity in these six regions is low, relative to global reference countries, as measured by insurance density (premium per capita). While most African countries have experienced double-digit insurance growth in CAGR in local currency over the last five years, this has mostly been driven by economic growth, rather than deepening market penetration. Levels of insurance penetration in Africa are half the world average measured as a percentage of GDP. 

“The prospects for growth in commercial lines are also good. In Nigeria, for example, commercial insurance has performed strongly, with oil and gas growing at 9 percent per annum and marine and aviation at 10 percent per annum between 2014 and 2018. In 2018, oil and gas insurance and marine and aviation insurance accounted for 34 percent and 11 percent, respectively, of nonlife gross premiums in Nigeria.In Ghana, the Ghana Oil and Gas Insurance Pool (GOGIP) almost doubled from $25 million in 2016 to $48 million in 2019 and represents approximately 15 percent of total nonlife premiums in that country, “he added.