Democratization of insurance in Africa

Global Courant

It is a cruel irony that Africa – the continent arguably most exposed to the risks and ravages of a changing climate and economic uncertainty – is also the continent least protected by insurance instruments. The African insurance penetration rate accounts for 3% of the continent’s GDP, a figure that dwarfs the global average of about 7%, and premiums per capita are 11 times lower than the world average.

Unprecedented environmental changes, compounded by global economic instability and woefully disrupted international supply chains, demand that Africans and African businesses enjoy the basic safety and protection of insurance products. In addition, the predominance of small and medium-sized enterprises (SMEs) in African economic life only increases the need for some sort of safety net to provide already vulnerable communities with a level of security to which they are certainly entitled.

Although seldom mentioned as a fundamental basis for development, insurance and insurance-applicable technology are indispensable, and their importance is only increasing. Indeed, the Brookings Institution characterizes insurance as an “often overlooked” but nevertheless crucial “behind-the-scenes factor driving growth at all levels of society, from family life to massive infrastructure projects to technological development”.

It is in this context that FSD Africa – the specialist development agency dedicated to making finance work for Africa’s future – launched the “BimaLab” program in 2020. With the support of African regulators and lenders such as Swiss Re Foundation, Prudential, SCBF, GIZ and FSD Ethiopia, we have developed an insurtech program that drives the development and scalability of inclusive and innovative insurance products tailored to evolving African concerns and risks.

BimaLab seeks to address – and ultimately close – the “protection gap” prevalent in Africa by cultivating the next generation of insurtech innovators through a combination of capacity building, technical assistance, funding support and helping ensure regulatory alignment and, where necessary , reform (take , for example, Ghana’s revisions to its insurance law to accommodate an “innovative licensing category”).

The program started three years ago with a pilot in Kenya and then expanded to Nigeria and Ghana in 2021 and 2022. This year the program has rolled out the accelerator program in 10 African countries.

A cursory glance at the numbers shows the value this and similar programs are already bringing to communities across the continent. In Kenya, Nigeria and Ghana, BimaLab-sponsored insurtechs have reached one million customers and created 43 new insurance products and technologies. In addition, nearly 20 of BimaLab’s cohort have been successful in signing strategic partnership agreements with major insurance players in the region, accelerating the process of bringing new products and services to market and raising more than $3 million. Graduates of the BimaLab program – CoverApp in Kenya, SosoCare in Nigeria and BeNew Insurance in Cameroon – have even won African Insuretech awards.

Providing insurance to SMEs in Africa

The urgency of democratizing insurance in Africa stems largely from the central role SMEs play in the economic development of the continent. SMEs represent about 90% of all African businesses, generating 40% of the continent’s GDP and up to 80% of jobs. The resilience of these companies, which do not have the kind of balance sheets that can withstand major disruptions without support, depends on our ability to create a viable and accessible insurance market.

Moreover, in addition to Covid-19 and the economic chaos caused by the conflict between Russia and Ukraine, African companies are facing the sharp end of climate change. Of the 10 countries most vulnerable to a changing climate, seven are in Africa, and the sub-Saharan region contains 95% of the world’s rain-fed agriculture. Declining or unpredictable rainfall – as has recently hit East Africa – and rising temperatures have hurt small businesses in already impoverished communities, threatening their economic collapse.

Access to insurance products has a transformative effect on the stability and resilience of African SMEs by developing insurance products that are now affordable and effective. Moreover, by supporting companies at their most vulnerable, we can help cultivate the great companies of tomorrow, accelerating the development of Africa and its prominence in the global economy.

There is a widening protection gap in Africa that exposes tens of millions of people to radical unpredictability and leaves them completely at the mercy of a rapidly changing climate and a destabilized global economy. By bringing together innovators, insurance companies, technology service providers, regulators and investors, we can transform insurance and the scale at which it is delivered to communities where a basic safety net is vital.

Democratization of insurance in Africa

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