Africa’s insurtech providers are overcoming challenges and making insurance accessible to the fast-growing low- and middle-income populations.

When it comes to insurance markets, Africa may not be top of mind. But with 16 percent of the world’s population and a mere 1.7 percent of insured catastrophe losses, there is opportunity for anyone willing to take a closer look at the region.

Africa lags when it comes to Gross Domestic Product (GDP), but the continent is experiencing explosive growth. From 2005 to 2015, African countries almost tripled their GDP, from USD $834 billion to $2.2 trillion combined. East Africa, which includes Ethiopia, Kenya, Tanzania, and Rwanda, had one of the fastest-growing economies in 2015, with a combined GDP of $179 billion.

“The insurance market is closely linked to economic growth. When incomes rise you have more insurable assets.”
— James Norman, KPMG East Africa

Tapping a “non-viable” market

Despite the enormous economic growth, much of the population still lives in poverty. Some 60 percent of Africans rely on agriculture for their livelihood, so crop-killing drought or flooding, or the death of a breadwinner, can leave families without food, shelter and money.

Although the lowest-income families are at greatest peril for such risks, they are the least able to afford protection. However, innovative insurtech disruptors are tapping this “non-viable” market, using technology to achieve scale and keep costs down.

Mobile penetration is making this possible. As of 2016, about 4 in 10 people in sub-Saharan Africa had a mobile phone. In Nigeria it was more than 70 percent and in Kenya almost 90 percent. In some African countries, more people have access to a mobile phone than have access to electricity.

This gives insurtech providers a way to reach a large and growing market through a cost-efficient digital platform.

“Africa is digital by nature. Mobile is the fastest growing sector and innovation enabler on the continent with an expected 1.2 billion African subscribers by 2018.”
— Oliver Bäte, CEO of Allianz SE

Making insurance accessible

The insurance market in South Africa is more mature than in nearby countries, but insurers still tend to focus on medium to high income earners. For the lowest income segment, traditional life insurance products are costly, complex, and inflexible. These customers are more likely to see their policies lapse rather than receive any benefit.

So in 2015, Johannesburg-based MobiLife introduced never-lapse insurance. If a policy-holder misses a payment (or even 11 payments), they do not lose their coverage. Instead, MobiLife lowers the payout proportionally.

This helps the policy holder keep their coverage while reducing MobiLife’s customer acquisition costs. The mobile-based insurtech pays out policy benefits using grocery vouchers sent via text message, covering the family’s most urgent need after the death of a breadwinner.

“[Insurance providers] need to understand the importance of reach, access, affordability, simplicity, flexibility and scalability… The adoption of digital technology enables insurance companies to reduce the cost of servicing clients, to tailor products to the needs of specific income groups, and to streamline internal processes.”
— Andrew Warren, Deloitte Africa

Replacing skepticism with trust

Other insurers are helping people access the coverage they need without paying for it at all.

BIMA, a microinsurance provider operating in Ghana, Senegal and Tanzania, partners with mobile network operators and initially offered free insurance based on customers’ airtime spend. Now it has moved to a paid model with coverage as low as $30 per month.

The no-cost introduction gave skeptical customers a chance to “try before they buy”. Products include pay-as-you-go life, personal accident and hospitalization insurance.

And low-income customers value the coverage — 60 percent of BIMA’s customers live on less than $2.50 per day. The company, which also operates in Asia and Latin America, keeps their costs down by closely integrating everything from distribution to claims with the mobile ecosystem.

Another insurtech example is ACRE Africa, which offers crop insurance through partnerships with seed and fertilizer companies. When farmers pay extra to purchase premium drought-resistant seed, they are covered in case of a crop failure. Farmers get a special PIN number that they text to ACRE, activating their insurance and allowing the insurer to triangulate the farm location using a mobile signal.

Technology is increasingly at the heart of Africa’s insurance success stories. Serving low-income customers with policies priced at less than a dollar may not be profitable using traditional approaches, but insurtech players are applying innovation and creativity to break into a massively underserviced and growing market.