Hollard, South Africa’s largest privately-owned insurance group with turnover exceeding 15 billion Rands and more than 6 million policyholders has entered the Ghanaian insurance market by successfully acquiring 51% stake in Metropolitan Insurance Ghana.
Hollard, like other insurers, who have made Africa a priority, are being enticed by Africa’s positive outlook of strong economic growth, low insurance penetration and the ascendance of the African middle class.
On the first count the International Monetary Fund predicts that Africa will top regional economic growth tables over the next five years. “All businesses like to trade in a positive growth environment and insurers even more so, due to their profitability being a complex mix of underwriting margin (operational ability) and the rates of domestic inflation and GDP growth,” says Frans Prinsloo, Managing Director at Hollard International.
Swiss RE’s World Insurance in 2014 reports a total insurance premium penetration (as a percentage of GDP) for the Africa region of 2.8% as compared to the double digit penetrations achieved in many developed markets.
“Low insurance penetration is both an indication of business potential and an opportunity for new entrants to a country market to achieve solid premium growth off a low base,” he says.
Hollard has found that the best approach to expanding into Africa is to partner with experts in their preferred territories. The insurer entered the Ghanaian market, following the acquisition of a majority stake in The Metropolitan Insurance Company (Met Insurance). Hollard will be supporting Met Insurance to optimise operations in Ghana and grow market share.
Why the interest in Ghana? The KPMG South African Insurance Industry Survey 2015 suggests that Ghana has one of the strongest medium term growth prospects in the African insurance landscape.
The country’s National Insurance Commission (NIC) reports US$ 416 million in total premiums in 2011 (the latest available report) with a penetration rate of just 1.1%. But the real attraction in the Ghanaian market is the 16.7% per annum growth in insurance premium (measured in US dollars) as reported by the NIC between 2007 and 2011. A simple extrapolation suggests total premiums could approach US$ 730 million by 2015 and US$1.5 billion by 2020.
Ghana’s market is fragmented and comprises 47 insurance companies, of which 21 are life insurers. The bulk of the country’s short term business is written in the business sector though a burgeoning middle class means strong growth in the retail sector should follow.
Hollard believes that a “prevention is better than cure” principle should be applied in the relationship between insurer, insurance broker and business clients. “Each partner in the short term insurance value chain should remember that it is better to mitigate or prevent the many risks that businesses face rather than trying to ‘fix’ things following a loss event,” says Marcel Wood, Head of Risk Management in Hollard’s commercial business.
“It is only when the steps taken to mitigate a risk fail, that insurers make good on the promise to return firms to their pre-loss position as quickly as possible and with the minimum disruption.”
Africa’s constantly evolving risk environment makes a holistic approach to risk management and business insurance more important today than ever. “The risk landscape, whilst not hostile, is extremely challenging, and requires that insurers work closely with brokers and risk managers to limit overall exposures to risk events,” he says.
Insurers operating in Africa face unique challenges including the development and distribution of products to low income markets, difficulty in reaching rural populations differences in regulatory regimes, currency volatility, the dismissal of insurance products by various religions and political instability to name a few.
Their business clients, meanwhile, must consider the impact of adverse weather events such as flooding and heavy storms as well as a range of risks that occur due to poor infrastructure. Damage due to flooding and hail can run into millions of rand and cause severe damage to buildings, manufacturing equipment, motor vehicle fleets and stock in trade at firms.
“We have a deep understanding of the risks that African businesses face and are ready, with the assistance of our experienced commercial insurance broker partners, to assist businesses both with risk mitigation strategies and with structuring suitable insurance solutions that will pay out when the mitigation efforts fail,” says Prinsloo.
“In an environment where businesses already struggle to make ends meet the last thing they can afford to do is to drop the ball where risk mitigation and insurance are concerned.”
He urged businesses to increase their vigilance by aggressively scanning the risk environment, reviewing their short term insurance policies with assistance from an experienced broker and making sure that that all possible loss events are covered.
Insurance that covers a firm for every conceivable risk is a ‘must have’ for Africa’s business executives as they navigate today’s complex risk environment, but it must go hand in hand with proper risk mitigation and recovery strategies.