Insurance is growing in Africa, with South African insurers like Sanlam and Old Mutual acquiring interests and expanding on the continent. Insurance has a vital role to play in wealth preservation for the billion consumers on the continent, as it has done in the rest of the world.

But Africa is not a single, homogenous market and its growth is coming off a low base. A lack of quality data (a vital resource for insurance), is a constraint. Consumers also don’t have a long history with insurance or a good understanding of the more complex life products. Global solutions are not necessarily going to be appropriate.

Africa is a target for profitable growth but requires an understanding of consumer behaviour

The insurance industry globally has been resilient amid slow global economic growth. Although it is growing, insurers are much more circumspect about looking for profitable growth following the global financial crisis in 2008. Africa is seen as one of the emerging market opportunities.

Africa is multi-cultural. Understanding customers is difficult because limited market research is available. Even if extensive research was available, market research is limited in its usefulness as insurers try to improve their understanding of customer segments and provide an engaging and fluid experience. Without a history of insurance, the response to market research by consumers is not likely to be an accurate indicator of demand. Customer behaviour needs to be observed and understood to derive real insights that can be used to shape attractive products and differentiated experiences. In addition, the practices of insurers globally should not simply be replicated in Africa, as history shows this does not deliver positive results. The World Insurance Report for 2014 found that only 32% of non-life insurance customers and 29% of life customers had positive experiences, while the vast majority had neutral experiences.

Strategic question: How can insurers understand the behaviour of their target customer segments at sufficient scale to design attractive products, services and experiences?

A mobile-first operating platform is Africa’s digital platform

Digitalisation is starting to make an impact on insurance like it is in other financial services industries. But there are differences. For instance, in banking customers interact far more frequently with their banks than they do with their insurers. And insurance customers are slower to adopt direct channels, preferring to speak to intermediaries. Nevertheless, a move to digital insurance is seen as an opportunity to optimise operating model costs and improve the customer experience, as well as to complement intermediary channels (for example, by providing continuous access to policy data to customers).

Research firm Gartner has found that many insurers globally are looking to replace or modernise their legacy core systems (such as policy administration) to provide a platform that is more flexible for product and distribution innovation. And the greater volume and variety of available data, such as mobile usage data and social media data, is leading to increased adoption of business analytics to generate insights from data.

Africa is a mobile-first continent. Although behind in the adoption of many technologies, mobile technology is one area where Africa is quickly catching up. Mobile and, more generally, SIM connections are making digital strategies a reality for insurers in Africa. The benefit over other digital channels is that mobile provides the potential to acquire detailed data on intermediary and customer behaviour, especially if location-based services can be leveraged on mobile devices. Insurers can use this to develop digital operating platforms to support profitable growth. These need to be designed for mobile first rather than mobile being simply one more channel to add on.

Strategic question: Does the current operating and technology platform support a mobile-first architecture?

Cross-industry business models offer distribution solutions that are quick to market

Insurance distribution is one of the main targets for digitalisation. There are significant insights to be gained from increased data and intelligence on distribution, as well as operational efficiencies. The reality is that both intermediary and direct channels are important, although the intermediary channel is still the most important as it is preferred by consumers globally. Customer behaviour is increasingly likely to include use of multiple channels, with the expectation that interactions can start on one channel and be concluded on another (‘omni-channel scenarios’).

When insurers consider distribution channels in Africa, the question is whether to build, partner or buy. Building a distribution channel is likely to take the longest and be the most expensive route while partnering provides an opportunity to get to market quicker. Some insurers are looking for partners outside of insurance, such as mobile money operators, that already have extensive distribution channels for financial services. Buying a distribution channel offers potentially the fastest route to market, but comes with the challenges of integrating organisational cultures. In addition, existing insurance distribution channels in Africa (outside of South Africa) are hard to come by.

Strategic question: What is the best option for developing ‘omni-channel’ distribution channels?

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