EMERGING MARKETSGrowing insurance & chal lenges with a focus on Afr ica

Jaco van der Merwe & Jean Ger in

Delo i t te & ToucheAuthor Contact Details

Jaco van der Merwe

javandermerwe@deloitte.co.za

Jean Gerin

jgerin@deloitte.co.za

AGENDA

1. Background

2. Survey Results

Penetration rates

Distribution

Product innovation

Technology

Regulation

3. Relevant Examples

4. Conclusion

PG 1

00

Background

2016 GLOBAL PREMIUM SPLIT 01

PG 3

41%

19%

29%

1% 2%4% 4%

Non-life written premium, USD 2.1 trillion

North America Emerging Asia

Europe Africa

Oceania Latin America and Caribbean

Japan

Emerging markets roughly capture

24% of

world market

23%

26%33%

2%1%

3%12%

Life written premium, USD 2.6 trillion

North America Emerging Asia

Europe Africa

Oceania Latin America and Caribbean

Japan

Emerging markets roughly capture

38% of

world market

source: Swiss Re Institute, Sigma No 3/2017

19%

1%

4%

33%

2%3%

OUTLOOK FOR EMERGING MARKETS01

PG 4

NON-LIFE REAL PREMIUM GROWTH LIFE & HEALTH REAL PREMIUM GROWTH

Outlook for growth in Africa is optimistic, though growth is generally lower than other emerging markets

but higher than in advanced markets.

Growth in Asia outpaces all regions, however the rate of growth is slowing down.

GLOBAL INSURANCE PENETRATION RATES01

PG 5

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

North

America

Latin America

and

Caribbean

Europe Asia Africa Oceania World

Pe

ne

tra

tio

n r

ate

Continent

Total Penetration rate Life Penetration rate Non-life Penetration rate

Source: Swiss Re Institute Sigma No 3/2017

Insurance penetration rates

are defined as written

premiums as a percentage of

GDP.

Penetration rates in emerging

markets are markedly lower

than in the developed world.

Africa has the lowest total

penetration rate of 2.7%, with

a non-life penetration rate of

less than 1%.

We will look at several reasons

for the low penetration rates in

our survey.

AFRICA INSURANCE PENETRATION RATES01

PG 6

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Egypt Kenya Nigeria Morocco Tunisia Algeria Angola

Pe

ne

tra

tio

n r

ate

Country

Less developed

Total Penetration rate Life Penetration rate Non-life Penetration rate

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

South Africa Namibia Mauritius

Country

More developed

Total Penetration rate Life Penetration rate

Non-life Penetration rate

Mauritius, Namibia and South Africa have a higher life insurance penetration rate relative to non-life.

In less developed African emerging markets the non-life insurance penetration rate exceeds the life insurance rate.

KEY CHALLENGES (1) 01

PG 7

INAPPROPRIATE DISTRIBUTION CHANNELS

Poor infrastructure

Insufficient knowledge/skills

Paper based processes

PRODUCTS NOT SUITED TO MARKET

Copy and paste

Complex terms and conditions

Irregular income levels

Unbanked community

KEY CHALLENGES (2) 01

PG 8

LACK OF TRUST

Driven by fraud

Poorly trained brokers

Limited understanding of insurance by policyholders

Significant delays

OTHER CHALLENGES

Poor literacy

Low income

Alternatives to insurance e.g. community based schemes…

We will look at these in more detail in our survey…

Our Survey

SURVEY OBJECTIVES02

PG 10

To assess the relative

importance of key supply side and demand side factors

affecting the insurance

penetration rate.

1To determine the key challenges

facing insurers in emerging markets.

2To explore how

product innovation can

be used to improve

insurance penetration.

3To determine the level of adoption

of new technologies,

and how this will likely change.

4To approximate the current and

expected contribution to

sales of different distribution channels, including

partnerships.

5To assess the

impact of regulation on

insurance take-up, and to

explore how government can increase access

to insurance.

6

NATURE OF PARTICIPANTS02

PG 11

NUMBER OF PARTICIPANTS

Type of insurer % of respondents

Direct writer 71%

Reinsurer 10%

Composite 19%

Most participants were direct writers.

We received a total of 21 participants from emerging markets, mainly Africa (excluding SA)

COUNTRIES INCLUDED IN SURVEY02

PG 12

TOTAL GROSS WRITTEN PREMIUM (GWP) IN AFRICA COVERED IS USD 1,326.1 million

*Excludes contribution from selected multinationals with presence scattered across various additional

countries incl. Morocco, Ghana, Egypt, Uganda, Ethiopia (and South Africa).

Country % of respondents *

Nigeria 35%

Mauritius 15%

Swaziland 10%

Namibia 10%

Kenya 10%

Zimbabwe 10%

India 5%

Ivory Coast 5%

Total 100%

COMPANY VERSUS INDUSTRY GROWTH EXPECTATIONS02

PG 13

GROWTH EXPECTATIONS FOR NEXT THREE YEARS (PER ANNUM)

Country Company growth vs Industry growth

Namibia

Mauritius

Swaziland

Kenya

Nigeria

Zimbabwe

Ivory Coast

7% 7%

15% 5%

10% 5%

20% 13%

30% 12%

13% 8%

15% 8%

GROWTH OPPORTUNITIES - AUDIENCE POLL

What do you consider to be the top growth opportunity in emerging

markets?

1. Use of technology

2. Development of new products

3. Improved regulation

4. Improving customer service

5. Tapping into new markets

GROWTH OPPORTUNITIES - AUDIENCE POLL

0

5

10

15

20

25

30

35

40

Use of technology Development of newproducts

Improved regulation Improving customerservice

Tapping into new markets

What do you consider to be the top growth opportunity in emerging markets?

KEY RISKS - AUDIENCE POLL

What do you consider to be the top risk in emerging markets?

1. Economic conditions

2. Regulatory changes

3. Competition

4. Political climate

5. Lack of new projects

6. Technological challenges

7. Consumers questioning the need for insurance

8. Wide variety in culture

KEY RISKS - AUDIENCE POLL

0

2

4

6

8

10

12

14

16

18

20

Economicconditions

Regulatorychanges

Competition Political climate Lack of newprojects

Technologicalchallenges

Consumersquestioning the

need forinsurance

Wide variety inculture

What do you consider to be the top risk in emerging markets?

GROWTH OPPORTUNITIES02

PG 18

RESPONDENTS KEY OPPORTUNITIES FOR PREMIUM GROWTH

The top two opportunities for growth :

1. Developing new products in :

Agriculture

Cyber insurance

2. Better use of technology :

Claims processing efficiency

Apps/smartphones

Online sales

0

1

2

3

4

5

6

7

8

9

10

11

Development of

new products

Use of technology Improved

regulation

Improving

customer service

Tapping into new

markets

Nu

mb

er

of

resp

on

de

nts

PREMIUM GROWTH RISKS02

PG 19

PARTICIPANTS’ KEY RISKS TO PREMIUM GROWTH

0

2

4

6

8

10

12

14

16

Economic

conditions

Regulatory

changes

Competition Political climate Lack of new

projects

Technological

challenges

Consumers

questioning the

need for

insurance

Wide variety in

culture

Nu

mb

er

of

resp

on

de

nts

Understanding Penetration Rates

PENETRATION RATES: DEMAND SIDE03

PG 21

PERCEIVED IMPACT ON THE PENETRATION RATE OF KEY DEMAND SIDE FACTORS

86% of companies believe that poor penetration is due to demand side issues

Language barriers

Community based schemes/societies/clubs e.g. Stokvel

Lack of availability of products to meet customers' needs

Inadequate distribution channels available

Low perceived value for money

Lack of understanding of insurance products

Complicated take-on and claims process

Low level of trust in insurance

High cost of insurance

no impact small impact medium

impact

high

impact

very high

impact

GDP VERSUS PENETRATION RATES03

PG 22

According to the average

respondent’s scores, the most

significant demand side factor is

the high cost of insurance.

The graph shows that countries

with a higher GDP per capita

generally have a higher

penetration rate.

The correlation coefficient

between GDP per capita and

the penetration rate is

moderately positive at 0.49.

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

2 000

4 000

6 000

8 000

10 000

12 000

Pe

ne

tra

tio

n r

ate

GD

P p

er

ca

pita

(U

SD

)

Country

GDP per capita and penetration rates in Africa

GDP per capita Total Penetration rate

TRUST IN THE FAIRNESS & VALUE OF INSURANCE03

PG 23

WHAT IS THE LEVEL OF CUSTOMERS’ TRUST IN INSURANCE COMPANIES ?

0

1

2

3

4

5

6

7

8

0 - customers have no

trust

1 - customers have some

trust

2 - customers trust

insurance companies in

most cases

3 - customers fully trust

insurance companies

Nu

mb

er

of

resp

on

de

nts

This represents what

insurers believe their

customers’ view is on

the level of trust.

70% of participants

believe that

customers have a

low level of trust.

TRUST IN THE FAIRNESS & VALUE OF INSURANCE03

PG 24

KEY FACTORS WHICH REDUCE THE LEVEL OF CUSTOMERS’ TRUST (INSURERS’ VIEW)

0

1

2

3

4

5

Lack of clear

communication

Perception that

insurance is expensive

Lack of education Belief that insurance is

not needed

Nu

mb

er

of

resp

on

de

nts

The key reasons for

customers not trusting

insurers is:

Lack of clear

communication by

the insurer.

Perceived high cost

of insurance.

LEVEL OF CUSTOMER & INTERMEDIARY FRAUD03

PG 25

COMPANIES’ VIEW ON FRAUDULENT CLAIMS AND INTERMEDIARY FRAUD

0

1

2

3

4

5

6

7

8

9

10

11

12

1 - less than 5% 2 - between 5%

and 10%

3 - between

10% and 20%

4 - more than

20%

Nu

mb

er

of

resp

on

de

nts

Estimated percentage of customer fraud

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

0 - no impact 1 - some

impact

2 - medium

impact

3 - significant

impact

Nu

mb

er

of

resp

on

de

nts

Impact of intermediary fraud on penetration rate

PENETRATION RATES: SUPPLY SIDE03

PG 26

PERCEIVED IMPACT ON THE PENETRATION RATE OF KEY SUPPLY SIDE FACTORS

Regulation Unfavourable

economic

conditions

Low

profitability

Poor quality

data

Lack of

available

information

Political

factors

Challenges

distributing

products

Language

Av

era

ge

sc

ore

fro

m r

esp

on

de

nts

no impact

small impact

medium impact

high impact

very high impact

PENETRATION RATES : IMPACT OF REGULATION03

PG 27

HOW REGULATION MAY IMPACT INSURANCE PENETRATION RATES

Companies’ view on adequacy of regulation on Treating Customers Fairly (TCF):

74% of companies believe that regulation is adequate in the area of TCF

Stronger market conduct regulation More stringent solvency rules More regulated investment markets

Av

era

ge

sc

ore

fro

m r

esp

on

de

nts

minimal impact

some impact

moderate impact

high impact

very high impact

PENETRATION RATES03

PG 28

HOW CAN GOVERNMENT IMPROVE PENETRATION RATES

0

1

2

3

4

5

6

7

8

9

10

11

12

13

Educating the public &

increasing awareness

Enforce compulsory

insurance

Improve infrastructure Lower fees

Nu

mb

er

of

resp

on

de

nts

According to

participants, the best

way for government to

improve penetration

rates is to :

Educate the public

to increase

awareness, which

could increase

business volumes.

Enforce compulsory

insurance.

PENETRATION RATES03

PG 29

WHAT CAN COMPANIES DO TO IMPROVE CUSTOMERS’ TRUST IN FAIRNESS & VALUE FOR MONEY ?

0 1 2 3 4 5 6 7 8 9 10 11 12

Rewarding loyalty

Using technology e.g. to capture claims

Educating clients and intermediaries

Increase transparency & disclosure

Making the wording of documents simpler

Provide more communication to policyholders

Customer service e.g. prompt claims settlement

Number of respondents

Distribution Challenges

DISTRIBUTION : COMPOSITION OF SALES CHANNELS04

PG 31

HOW WILL SALES CHANNELS CHANGE IN THE NEXT FIVE YEARS ?

Better access to technology,

specifically the increased

availability of mobile phones, will reduce the reliance on

brokers and will result in

greater use of direct sales

and partnerships.

However, 48% of companies

thought that behavioural and

cultural factors favoured the use of intermediaries, which

may somewhat limit the

reduction in the use of

brokers.Brokers Direct Partnerships

Av

era

ge

sc

ore

fro

m r

esp

on

de

nts

no contribution

some contribution but less than 25%

between 25% and 50%

between 50% and 75%

more than 75%

DISTRIBUTION : PARTNERSHIPS04

PG 32

HOW WILL SALES THROUGH PARTNERSHIPS CHANGE IN THE NEXT FIVE YEARS ?

Participants expect that there

will be an increased reliance

on partnerships to generate sales.

The largest increase in sales is

expected to come from

partnerships with telecoms,

followed by Micro-finance

institutions.

Banks Retailers Telecoms Micro-finance

institutions

Av

era

ge

sc

ore

fro

m r

esp

on

de

nts

no contribution

some contribution but less

than 25%

between 25% and 50%

between 50% and 75%

more than 75%

DISTRIBUTION : PREMIUM COLLECTION METHODS04

PG 33

HOW WILL PREMIUMS BE COLLECTED IN THE NEXT FIVE YEARS?

Cash payments Direct debits Smartphones Micro-finance

institutions

Av

era

ge

sc

ore

fro

m r

esp

on

de

nts

no contribution

some contribution but less than 25%

between 25% and 50%

Cash payments is the

primary means of

collecting premiums

among our participants.

Participants expect that

reliance on cash

payments will significantly

drop, and that direct

debits and payments

through smartphones will

be the preferred methods

of premium collection.

between 50% and 75%

more than 75%

Product Innovation

PRODUCT INNOVATION05

PG 35

COMPANIES VIEW ON HOW INSURANCE PRODUCTS ARE TAILORED TO CUSTOMERS’ NEEDS

0 2 4 6 8 10 12

1 - very suitable to meeting customers'

needs

2 - suitable to meeting customers'

needs

3 - Some deficiency in meeting

customers' needs

4 - not suitable to meeting customers'

needs

5 - totally unsuitable to customers'

needs

Number of respondents

Innovative industry products - special

mention:

Kidnapping and ransom insurance – cost

of having negotiator, cover fees to

response person.

Pay-as-you-drive.

Cell funds – instead of traditional

insurance client sets up a fund.

Value added products e.g. cover while

moving homes, misfuelling.

PRODUCT INNOVATION05

PG 36

A report by Cytonn investments (2015) stated that "product innovation is the single biggest disruptive opportunity

in the insurance sector“.

WHERE DO COMPANIES BELIEVE THAT INNOVATION IS POSSIBLE ?

Claims handling Pricing Ease of

understanding

Use of appropriate

language

Packaging

Av

era

ge

sc

ore

fro

m

resp

on

de

nts

no innovation possible

81% of companies thought that Value Added Services (VAS) e.g. road side assistance, free health check-ups were crucial to their products.

some innovation possible

a fair amount innovation possible

a lot innovation possible

PRODUCT INNOVATION05

PG 37

COMPANIES’ RELIANCE ON PAPERWORK

Large amounts of paperwork

deter potential customers &

result in slow claim pay outs.

76% of participants said that

they significantly relied on

paperwork.

Reducing the amount of paper

should improve penetration

rates.0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

No paperwork Minimal paperwork Significant

paperwork

Only paperwork used

Nu

mb

er

of

resp

on

de

nts

Take on/ renewal Claims

PRODUCT INNOVATION05

PG 38

RESPONDENTS’ SUGGESTIONS ON METHODS TO REDUCE PAPERWORK

0

1

2

3

4

5

6

7

8

9

10

11

12

13

Implement digital policies and

systems

Development of mobile apps Make use of emails as

opposed to printing

Nu

mb

er

of

resp

on

de

nts

Other methods suggested:

Introduction of electronic

signatures

Online registration and

documentation of claims

Start internally by minimising

filing

Change claims

management and claims

administration procedures

Technology

TECHNOLOGY06

PG 40

HOW DO PARTICIPANTS SEE THE USE OF TECHNOLOGY CHANGING IN THE NEXT FIVE YEARS ?

79% of respondents have been proactive in adopting new technologies

57% of respondents thought that legacy systems had a high impact in hindering adoption of new technology

Mobile phones &

tablets

Sensors Big data

analytics

Social media Cloud computing Telematics Customer

profiling

Av

era

ge

sc

ore

fro

m r

esp

on

de

nts

no role

some impact

medium role

important role

very important role

Case Studies

RELEVANT EXAMPLES07

PG 42

L INKS TO RELEVANT MATERIAL07

PG 43

DELOITTE MATERIAL

https://www2.deloitte.com/content/dam/Deloitte/za/Documents/financial-services/za_Digital-Insurance-101017.pdf

https://www2.deloitte.com/insights/us/en/industry/financial-services/marketing-life-insurance-in-a-digital-age.html

https://www2.deloitte.com/content/dam/Deloitte/ke/Documents/financial-services/Insurance%20Outlook%20report%20EA%20-%20Interactive.pdf

https://www2.deloitte.com/content/dam/Deloitte/ng/Documents/strategy/ng_Invest%20in%20Nigeria_Country%20Report_July18%20.pdf

AFRICA RISK CAPACITY

http://www.africanriskcapacity.org/

SUGAR INSURANCE FUND BOARD

https://www.sifb.mu/

Conclusion

KEY TAKEAWAYS08

PG 45

Trust

Companies need to

increase the level of trust

– prove that it is value for

money, improve

communication and

customer service esp. at

the claims stage

Target market

One of the biggest

problems remains how to

target the low-income

population and provide

suitable products

Technology

Technology will become

a key driving factor for

sales and distribution –

companies who adopt

this the fastest might

reap the greatest

rewards

Opportunities for

premium growth

Development of new

products

Improving customer

service

Use of technology

Improved regulation

Industry growth rate

Companies in emerging

markets believe industry

will grow at 6%-10% per

year over the next 3

years

Risks to premium growth

Economic conditions

Regulatory changes

Competition

Political climate

Lack of new projects