Potential of the African insurance market
You may know that households in the African consumer class spent US$ 1.6 trillion in 2017. This is projected to reach US$ 2.5 trillion by 2030, fueled by a rapidly growing population and rising incomes. For insurance it obviously presents an incredible opportunity – but how well do you really know your potential customers, or do you believe some of the many misconceptions?
Having lived and worked in East Africa for a decade, I will try to shine some light on this customer and the untapped market they represent, by using real people as examples.
Meet a water seller in Dar es Salaam
There are more than 7 million people in Dar es Salaam, many of whom have no access to public water supply. Informal water sellers are therefore an important resource in the community as they provide households with clean water.
So let’s meet Mwangi* and his family. Mwangi is in his mid-thirties and owns a pushcart that can hold twelve 20 litre water cans. Every day he pushes this cart back and forth between his customers and the water supplier, walking about 17 km in 9 hours – and earning US$ 15 per day. His wife Zahra is a nurse, and their son Imani helps out at a street food stall after school – together they earn about US$ 450 per month. This is more than the average Tanzanian household income of about US$ 200 per month.
African customers know the financial risks they face
Mwangi and Zahra do not have bank accounts and use a combination of cash and mobile money (M-Pesa) to buy what they need and pay their bills. Housing, food, school fees and transport costs make up 75% of their expenses. Their only asset is the water pushcart, worth around US$ 70. They are extremely vulnerable to any financial shock caused by illness, accident, fire or flood.
This means that in the (likely) event of illness in the family, Mwangi may be forced to sell his pushcart to pay for treatment or medicine. This pushcart is much more than his only asset – it is also his main enabler of earning income. Without it, his family may then be unable to pay rent, and find themselves suddenly homeless. They are therefore acutely aware of their financial volatility and the risks they face. Because of this, they understand the value of insurance and will pay to protect themselves if the products fit their needs.
Informal sector is the economic backbone of Africa
A large portion of African consumer expenditure comes from informal businesses and markets across the continent. Accounting for 80.8% of jobs, the informal sector is the main source of employment and the backbone of economic activity in urban Africa. The vibrancy of the informal sector is difficult to miss in African cities – street vendors are key in ensuring food security. Those who work in transport keep the city and the economy moving. And those operating in services are critical to the overall incomes and functioning of African cities.
A common misconception is that the informal sector consists only of subsistence businesses, yet there is so much more to it than that. It is growing and diverse and because of this, people do not necessarily seek to leave it. Yes, there are many subsistence businesses, but there are also informal entrepreneurs who do not aspire to join the formal sector. They own large buildings and large businesses. These businesses employ people and buy supplies from formal businesses.
Meet a recycling entrepreneur in Nairobi
Another good example is an entrepreneur in the Kibera slum of Nairobi – one of the biggest in Africa – that generates income by selling plastic waste. This is collected in Kibera and sold to recycling companies in industrialized areas in Nairobi. Nelson* started the business with two of his friends, with a strategy of “turning waste into value”.
At first, they collected plastic waste and sold it to recycling companies. However, as they began generating income, they were able to purchase an electric machine to crush plastic materials such as PET bottles, and to buy a large truck to transfer the plastic to the industrial area in Nairobi. Three people started this enterprise, but they now have 30 employees because of the expanding business. They are hoping to make more profit and provide stable job opportunities in Kibera.[i]
How can insurance successfully engage the African growth market?
Insurance is arguably the most effective way to transfer the risks associated with illness, accident, fire or flood and to prevent the sale of productive assets in case of a personal crisis. It is estimated that by 2023 there will be around 500 million consumers in Africa – many of them like Mwangi and Nelson. Unfortunately, the insurance industry has not been successful in reaching these potential customers, illustrated by the fact that in Africa the insurance penetration rate is mostly below 1.5%.
So how does the insurance industry engage with Mwangi and Nelson?
They cannot come to your office. They do not have bank accounts or payslips. They do not trust big companies, and do not understand how they operate. This is a challenge across the value stream – from product design, customer engagement and onboarding, premium collection, service and claim settlement. Yet they are successful entrepreneurs, well versed in technology that works for them, connected to their suppliers and customers, and properly integrated in the formal sectors. This market is one of the greatest growth opportunities for financial services – as has been illustrated by those companies that have made the effort to test and learn how to engage this market.
Greenraven provides insurance insights based on first-hand experience
At Greenraven we have extensive practical experience in the African insurance industry. Our main focus is supporting insurance companies, intermediaries and other industry stakeholders to significantly increase their new business, at lower per unit costs.
If you’re interested in learning more about customised insurance solutions for the African mass market, or want to explore how Greenraven can help your business, please contact us at hello@greenraven.co.za or connect with us on LinkedIn.
* Not their real names
