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Until recently, Africa’s legacy insurance market has been relying on an old agent-driven sales model, where agents physically scout for clients in offices, malls and other business centers to market, sell and deliver insurance products.
Under this model, these agents have mostly been focusing on selling individual policies largely to wealthy clients who can buy expensive products to earn them enough commissions.
This traditional distribution model has been linked to Africa’s historically low insurance penetration rate – stagnating at 3% compared to the world average of 7% – with most sales concentrated in major towns and cities.
For instance, Kenya’s Insurance Regulatory Authority 2022 data shows 84.5 % of industry’s total gross direct premiums are concentrated in Nairobi – the country’s capital.
But the trend has begun shifting as new insurance products, including micro-insurance provisions, start rising and adoption of technology in the industry gain currency in the country and across Africa.
Over the last five years, the continent has witnessed a surge in insurance technology (Insurtech) startups that are leading the way in disrupting the way insurance is distributed.
These companies are helping insurance providers move away from the old agent-driven sales model by adopting a digital-first approach that focuses on partnerships to market, sell, and deliver insurance policies – with a big focus on low and irregular income workers in underserved markets.
Most insurtech startups in Africa like Kenyan-based mTek are focusing on bolstering the access to, and distribution of insurance products, rather than actually offering insurance as an underwriter per se.
“Insurtech should act as an enabler of the ecosystem which has been there for centuries because that is really going to give the biggest benefit for the end user,” said mTek Chief Executive officer and founder, Bente Krogmann in an interview with bird.
Over-reliance on “push” promotional strategies that entails taking the product to customers and the latter only knows it after they have bought it, Krogmann said, has not helped in making insurance products understandable to most consumers.
Most insurance products in the market she said are also not covering a bigger addressable market -towards the needs of local communities – and are often not affordable to many.
“Actually the products available in the market have been designed for 3% of the market. It’s swapping, people are looking at micro and more localized insurance and I think that it’s essential to drive that. The other thing is we should make insurance understandable. We should make people understand what they’re actually buying,” explained Krogmann.
Leveraging big data, insurtechs are ushering a new era of simplified language, flexible payment terms matching diverse income levels, especially those that resonate with low-income earners and shortened process of acquiring and settling claims.
mTek, which started as a technology company in 2015 and ventured into the insurtech space in 2017, currently works with 40 underwriters across tier 1, tier 2, tier 3 in Kenya to enable about 500 agents, brokers work more efficiently and serve their clients better.
“We have a total of 130 products on the platform provided by these 40 underwriters, covering general and life insurance. The agents and brokers can access these products, run quotes digitally either through web app WhatsApp or APIs, compare the quotes, place the policies, get policy documents 24x7 and go back go to the next client,” she said.
The startup is also helping insurers, banks or other businesses ramp up existing insurance lines or create new products that function as added revenue streams, increasing product adoption for the main service.
“We are also integrating in the platform other ecosystem players such as banks, MFIs to solve the affordability problem and are working with re-insurers on product development making sure the products are available 24/7,” she added.
mTek continue to attract growth funds, the latest being a US$ 1.25 million to fuel expansion of its services in East Africa.
In the past five years, the number of insurtech startups creating solutions to lower the cost of distribution and provide insurance to uninsured individuals in Africa has significantly increased. This is a positive development for those in remote areas who previously lacked access to traditional, high-cost insurance.
In April, BimaLab Africa, an Insurtech Accelerator Program that offers hands-on venture-building support to startups, announced that it has helped scale the operations of 63 insurtechs that improve the resilience of underserved and climate-vulnerable communities since 2020.
Out of the 63 startups, 38 have signed strategic partnership agreements and brought their products to the market. They have developed up to 70 products and services for 10 countries, including Kenya, Ghana, Nigeria, Ethiopia, Uganda, Rwanda, Zimbabwe, South Africa, Egypt, and Morocco.
The Financial Sector Deepening (FSD) Africa and the Swiss Re Foundation backed accelerator program which targets startups that improve resilience by insuring approximately 200,000 people has reached over 3,000,000 customers, with BimaLab insurtechs raising on average over US$10 million.
BimaLab now intends to expand its footprint to accelerate 55 insurtechs across 15 African countries, including Tanzania, Tunisia, Senegal, Zambia, Malawi, and Somalia, by 2025.
“It will build strong innovation ecosystems by activating investors, capacity-building networks and corporate institutions to unlock capital, attract talent and share knowledge about insurance solutions tailored to those communities’ needs,” FSD Africa said in a statement.
According to research firm Briter Bridges, there are currently over 75 active startups operating in different verticals in Africa, from API development to car and crop insurance.
While BimaLab has been extending up to US$10 million to insurtechs, and the market has lately begun experiencing higher funding values. This highlights growing investor confidence in the role of insurtechs in fixing protection gaps on the continent.
In November 2023, Pineapple, a South African insurtech startup underwritten by Old Mutual, Africa’s largest insurer, raised US$22 million in a Series B round to become Africa’s most-funded insurtech startup.
Pula, a Kenyan-based agricultural insurance and technology company that insures 15.4 million small holder farmers across more than 20 countries in Africa, Asia and Latin America, raised US$20 million for further expansion.
Other key players in African insurtech include Turaco, which aims to insure a billion people within the next 25 years, doubling the number of insured people globally, and Lami, which has created an API for a range of businesses to offer digital insurance to their customers.
In Mali and Uganda, OKO, an agri-insurer, has developed a way to distribute insurance to farmers through partnerships with mobile operators.
Insurance companies are also warming up to the impending digital revolution in the sector, with Kenyan players beginning to harness the advanced capabilities of Artificial Intelligence (AI) and Machine Learning.
The Association of Kenya Insurers (AKI) Executive Director, Tom Gichuhi, said ahead of an Artificial Intelligence and Machine Learning Seminar in Nairobi in mid-May 2024 that with the rapid advancement of AI and ML technologies, the insurance industry stands on the cusp of a profound transformation.
“Our objective for the seminar is to catalyse the adoption of AI and ML innovations by the insurance industry to transform retail insurance products and insurance operations from pricing, underwriting, to distribution and even claims management,” said Gichuhi in a statement.
In 2020, Kenya’s insurance regulator, IRA, issued Microinsurance Regulations, which require microinsurance underwriters to register a separate business entity apart from conventional insurance.
According to the regulations, micro insurance products must not exceed a duration of twelve months (renewable), and the premium should not exceed US$ 0.31 (Ksh40 per day), while the sum assured should not exceed US$3,817 (Ksh500,000).
The regulations also allow micro-insurers to appoint intermediaries who are not required to register with the IRA.
Market research firm, IMARC Group, forecasts that the Africa microinsurance market will grow from US$3.9 billion in 2023 to US$7.7 billion by 2032, driven by the increased rollout of products in key markets such as South Africa, Morocco, Nigeria, Egypt, and Kenya.
“There has been an increase in the delivery of the microinsurance products to the target users through various institutional channels. These include licensed insurers, healthcare providers, microfinance institutions, community-based organizations, and non-governmental organizations (NGOs), which is propelling the market growth,” said IMARC Group.
