Traditional insurance methods, such as informal savings groups or chamas as they are popularly known, and community-based risk-sharing networks such as funeral associations, have historically been helped African communities to mitigate financial burdens in time of need.
As they often operate without the need for formal institutions, these methods have, due to their accessible nature, remained deeply rooted in the African culture, enabling people, particularly those living in rural areas, to get help in their time of need.
However, their limited scope, lack of scalability, and failure to provide comprehensive coverage for the emerging societal needs, have limited their impact, and this has contributed to the low insurance penetration rate in Africa, which estimates put at less than three percent.
The rise of formal insurance, driven by widespread use of mobile money and the emergence of digital insurance platforms, as well as regulatory reforms such as mandatory motor insurance, has however created new opportunities for the industry.
Strategic partnerships which ensure collaborations between insurers, banks and mobile network operators have also facilitated the creation and distribution of affordable, accessible insurance products tailored to the needs of diverse communities.
Despite this progress, formal insurance in Africa also faces significant hurdles, including lack of awareness, lack of trust in providers and the cost of premiums, which to some remains out of reach.
Furthermore, limited skill base from which the players can tap from, and the requirement to fill many personal details or provide many documents before the cover is activated, have stifled the impact of formal insurance, thus also contributing to a low insurance penetration rate.
To enhance insurance penetration there is need to develop integrated products that combine the strengths of traditional risk-sharing methods with formal insurance structures.
Hybrid models, such as micro insurance, can bridge the gap by combining the flexibility of traditional risk-sharing with the reliability of formal insurance.
Leveraging the strengths of each system and addressing their respective limitations and stakeholders can build a more inclusive and resilient insurance ecosystem.
Traditional insurance can form the base cover while formal insurance takes over the excess layer of risk, with the two being priced according to each customer’s needs.
Strengthening regulation by adopting forward-looking policies that foster innovation while ensuring consumer protection can incentivise market growth, as well as encourage stakeholder collaboration.
While not exhaustive, these approaches can be combined with emerging innovations like Artificial Intelligence and Machine Learning to accelerate innovations in product development and service delivery.
By combining these strategies, the insurance sector can achieve deeper and more inclusive coverage across Africa.
The writer is Chief Operating Officer, First Assurance.
