Kenyan-based reinsurer-Kenya Re has challenged African insurance companies to rethink their business models and find ways of retaining more value locally.
This, as it warns that foreign players continue to benefit from some of the continent’s most profitable insurance opportunities.
Kenya Re Group managing director Hillary Wachinga said African insurers need to focus more sharply on profitability and risk management if the continent’s insurance industry is to become more competitive and sustainable.
Wachinga said foreign companies have increasingly entered African markets, identified profitable opportunities and taken advantage of them, leaving local players to operate businesses that can be more difficult and less rewarding.
“Unfortunately, they come and tell people it is profitable. They take it to you. Then they leave you with the business,” Wachinga said.
He said the challenge should prompt African insurers and other industry players to examine how they can change the economics of insurance and ensure that more value generated by the sector remains within the continent.
The Kenya Re chief said the industry needs to collectively examine why insurance has struggled to match the pace of capital growth seen in other financial services, particularly banking.
“If we are to look at the compounded aggregate of insurance business, compare this to banking, we discover banking can grow capital faster than insurance,” he said.
Wachinga was speaking as the reinsurer outlined plans to bring together insurance companies, brokers, regulators, governments and other players in the insurance ecosystem to discuss ways of improving profitability across the industry.
The discussions are expected to focus on areas including agricultural insurance and other insurance lines that have struggled to generate sustainable returns.
He said the industry must move beyond simply growing premiums and instead concentrate on creating businesses capable of delivering sustainable value.
Kenya Re, which has expanded beyond its domestic market, currently does business across about 30 countries, according to Wachinga.
The reinsurer has operations or business interests in several African markets, including Uganda, Tanzania, Zambia and South Africa.
Wachinga said the regional expansion demonstrates the importance of building stronger African insurance institutions capable of competing across borders.
The company has also begun taking business from South Africa on an accommodation basis, allowing it to test the market and assess future opportunities depending on performance.
The push for greater profitability comes amid concerns over low insurance penetration, which Wachinga said represents both a challenge and a significant commercial opportunity for the industry.
He urged stakeholders, including the media, to help shape public understanding of insurance and encourage more people and businesses to take up insurance protection.
He described insurance as fundamentally a risk-management business, with reinsurers playing a critical role by taking on risks from primary insurers.
“Insurance is a business of selling promises,” he said, stressing the importance of ensuring that insurers have the capacity to honour those commitments when risks materialise.
For African insurers, Wachinga said the priority should now be to develop stronger, more profitable businesses while expanding insurance coverage across the continent.
The move, he said, would help African companies capture a greater share of the value generated by the continent’s growing insurance market rather than leaving the most profitable opportunities to foreign players.
