I caught up with Beat Strebel, Swiss Re African market head, to discuss topics such as the role of technology, opportunities on the African continent and the progress that we are making, as an insurance industry.
COVER: What are your thoughts around the market on the African continent?
Beat: You can look at the glass half full or half empty.
I prefer the half full approach. If you look at it from a macroeconomic perspective, there are some good news, seeing that last year, and this year actually, on average, the insurance industry has grown faster than GDP. So the relevance of the insurance sector as part of the overall economy, is gaining more importance, although slowly. And then I think a second really positive indicator is the resilience the insurance industry has shown during this very challenging recent time.
So, when you see the drop of GDP in most African nations over the last 10 months, and you compare it with the performance of the insurance industry, the insurance industry has shown great resilience, probably also showing the value of our products and solutions. If people and companies are tight from a financial perspective, and they stopped spending on things, then they probably first stop buying insurance.
In several markets in Africa premium volume/ premium production, during the first three quarters, is more or less at the same level as last year, while GDP might have dropped in the range of 10 to 25%. There’s no reason to sleep on our laurels here. On the contrary, I mean, still, globally, two thirds of Natcat events over the last 10 years have not been insured. In Africa, that percentage is unfortunately significantly higher. I think you’ll remember we spoke last year about the Tropical Cyclone Idai in Mozambique (2019), I think the forecast we had then ultimately was confirmed. More than 90%, actually 93%, of the economic loss was uninsured. So quite a massive protection gap.
And you can as well look at other lines of businesses, most individuals on the continent now have a huge protection gap in terms of life and health, or don’t have any insurance at all. Most cars actually on the continent, continue to drive around on a daily basis without being insured. Obviously, there are a few exceptions where the penetration is significantly higher like in South Africa.
If you look at most countries on the continent, the insurance penetration remains in the range of 1%. Now there are only a few exceptions, obviously South Africa is significantly higher and more in line with mature markets. You also have, as well, Namibia, maybe Kenya, Morocco, a couple of others above this 1% threshold, but most countries are still there.
I think the challenge remains, what we call the Triple A. So the awareness of people about the need to have insurance protection; the affordability, as many products from a customer’s perspective are too expensive and then as well, the accessibility, in other words, how do we get to the consumers in an efficient, effective way. So there’s still a lot to do.
Obviously, technology is going to be absolutely critical for fulfilling our mandate on the continent, and it’s really in all area. It’s in distribution, underwriting, claims handling, risk assessment, and it’s in Business Administration. Swiss Re has been in Africa in an uninterrupted way for more than 70 years. We thankfully already have a very meaningful business today and, despite current turbulence caused by COVID-19 and the following recessionary environment, we strongly believe in the potential of the of the continent.
We continue to invest in people, infrastructure, and risk capacity to be able to support the company and the local markets, with the aim to close the protection gap. Closing is very ambitious, so let’s say reducing it in a first step.
COVER: You spoke about the Triple A, of which, obviously, accessibility is quite a big one. And there’s a lot of innovation, as you mentioned, technology playing a big role, etc. Do you have any specifics that you think would help us to increase or to reduce that protection gap and increase the penetration?
Beat: I think that’s where technology really comes in. When you look at the average income of a large part of population and then as well of how much they could potentially spend on insurance, distribution needs to be very effective and efficient. We have to use technology. We need to try to plug into existing ecosystems, which are online platforms, via ecosystems around leisure, around transportation, health and well-being or be it around housing. We need to distribute much more in a digital way, at least for what we call personal lines insurance. And actually, Africa offers a fertile ground for this because we have, on average, a very young population, which is very technology themed and most Africans, independently of the level of income are very digital and very much on online platforms, actually transacting a lot. I therefore think this offer a great opportunity for the sector.
COVER: I’m very excited about parametric insurance, especially looking at some of the East African initiatives on Swiss Re’s side. How do you see parametric insurance as a solution on the continent?
Beat: Yes, I fully agree with you Tony, we also see great potential in it. And I think it’s really a very efficient, effective way of providing insurance coverage. Because, unlike indemnity based insurance law, where you have to go out into the field, and you need to assess each and every risk and then each and every loss, which is creating a lot of transactional costs With parametric insurance you’re working with an index. This makes it much easier, much more straight forward and you can plug it nicely into digital end to end processes. This clearly addresses a large part of the needs of the uninsured on the continent. Swiss re has developed a digital end to end platform specifically for that, ensuring that both the distribution and claims processes are more efficient.
As soon as an index is triggered, you pay out, within days because you don’t do individual loss assessment. So we believe this is definitely one of the approaches we should try to develop much stronger on the continent. Obviously, natural catastrophe risk is the one area where we see most application for it.
However, there are other areas as well. It is obviously not a magical solution and there are a couple of challenges around it. One of which is regulation. The framework for that does not exist in all countries on the African continent,. Therefore a close collaboration with regulators is needed to increase understanding of and buy in for the solution.
And the second part, obviously, is that there is an underlying basis risk. The index tends to represent the average impact of an event on a portfolio very well but, on the individual ,customer level it might be affected very differently. It can be worse or better than the index is actually telling. So again, here as well, the awareness creation and the understanding of the product is very important. But, I am absolutely convinced that parametric solutions will play a very important role in the development of the insurance markets in Africa in the years to come.
COVER: Besides innovation and technology, as mentioned, another one of the value added services that Swiss Re brings to the market is technical skill. How do you, as a reinsurer, see your role on the African continent in bringing all of that together to be part of the process of increasing penetration?
Beat: So we actually see ourselves having multiple mandates on the continent, and one is definitely to bring technology to the continent, to make it all cheap as well to jointly develop technology with local partners. As I said before, we have a wonderful startup environment on our continent in a few of the markets like in South Africa and Kenya. It’s our aim to work very closely with them and jointly develop solutions. I think the other mandates are, obviously to bring risk capacity to the market.
I think there are multiple risks on the continent, which will be uninsurable if we were to rely only on local capacity, just because of the complexity and the magnitude in the size of the risk. We also see it as our mandate to bring knowledge and expertise to the local insurance market, to invest in local talent and contribute to building a local pool of talent and expertise in the various markets.
From a different angle, we have also seen, multiple times that, thanks to international reinsurance capacity, it was possible to attract foreign direct investment. As an example, in one of the countries where the government launched a social housing program, that was being financed by international investors, they would only support it if there was a way to get insurance capacity for the owners of the houses upon taking out of mortgages.
Thanks to the capacity of the reinsurance market, that investment on the continent is taking place.