36 th AIO Annual Conference Dar Es Salaam, Tanzania May 2009

1. 36th AIO Annual ConferenceDar Es Salaam, Tanzania May 2009 Challenges of Access to Insurance Services in Africa Junior Ngulube

2. Challenges of Access to Insurance Services in AfricaFraming the Challenges • “……when you are a hammer, every problem is a nail…!”

3. Challenges of Access to Insurance Services in AfricaFraming the Challenges • Insurance Penetration in Africa is Relatively Low

4. Challenges of Access to Insurance Services in AfricaFraming the Challenges Per-capita income (2006, US$) Insurance market penetration (2006, in %) Penetration much lower if South Africa is excluded (NL: 0.82, L: 0.33) Low per-capita income and market penetration

5. Classification of insurance markets according to their state of development (Life) • Criteria • Life insurance penetration and density (premium per capita) • Consumers: Wealth, savings rate, family structures, awareness • Products: Range, complexity, flexibility, innovations, investment products • Distribution: Types and market shares of sales channels, mix, quality of agents and sales process • Supervision: Insurance law, supervisory authority (independence, resources, quality of data, models, instruments), practical effectivenesss and efficiency • Capital markets: Development and use of stocks markets, degree of integration of financial services, modern financial instruments • Technology available in the market (either internal or external) • Risk management:: Underwriting, claims management, experience studies or industry surveys, asset liability management, etc. • Companies‘ organisation: Legal forms, structure, management • Expertise and experience available in the market

6. Challenges of Access to Insurance Services in AfricaState of Development of Insurance Markets (Life) Super mature Mature Transitional Emerging Source: Munich Re

7. Challenges of Access to Insurance Services in AfricaFraming the Challenges • Wealth Drives Insurance Penetration

8. Challenges of Access to Insurance Services Relationship between wealth and insurance penetration • There is a positive relationship between wealth (measured as gross national income per capita in purchasing power parities) and a country’s insurance penetration • Higher wealth tends to result in a rising penetration in life as well as in non-life insurance (i.e. the insurance market is growing faster than the overall economy) • In general, the increase is stronger in emerging markets than in industrialized countries • Wealth alone does not explain the state of a country’s life insurance market. Other causes are differences in life insurance market environments across countries (e.g. degree of old-age pension systems being based on social security). • Based on the overall global trend, growth potential in life business in general exists in emerging markets (catching up) as well as in industrialized countries (reform of social security systems, ageing society)

9. Relationship between economic wealth and life insurance penetration Data: year 2005 Industrialized Countries Penetration in % Global trend line Emerging Markets Gross national income per capita (in PPP-US$) Life5.1.2 Life insurance markets and competitors research, Heike Wengert, 2007

10. Relationship between economic wealth and Non-life insurance penetration

11. Challenges of Access to Insurance Services in AfricaFraming the Challenges • Growth in Insurance Penetration

12. Some African countries fall in the category of Emerging Markets with high growth potential Non-Life: Expected average real growth 2004 - 2010 and penetration 2010 (G7 countries not included in global averages) NL real growth until 2010 greater than average (in std.dev.) China Angola 3 Sudan 2 India Turkey Russia Chile Argentina 1 Tanzania Mozambique Penetration in 2010higher than average(in std. dev.) Singapore Penetration in 2010lower than average(in std. dev.) Ethiopia Korea Nigeria Mauritius Mexico Taiwan Zambia South Africa 0 Israel Brazil Cameroon -2 -1 0 1 2 3 Kenya New Zealand Australia United States Canada Japan Norway United Kingdom France -1 Switzerland Germany Italy NL real growth until 2010 smaller than average (in std. dev.) -2 Note: Size of bubble relates toinsurance market size in 2010

13. Non-life premiums outgrow economic growth in line with rising per capita income (= wealth) Non-Life: average real growth 1994 - 2004 and current penetration „Typical Emerging Markets" „Advanced Growth Markets" NL real growth 94-04 greaterthan average (in std. dev.) 2 Russia China Insurance market Taiwan Sudan development path 1 Turkey Greece India Poland Ireland Korea Slovenia Argentina Current penetrationlower than average(in std. dev.) Saudi Arabia South Africa Luxembourg Malaysia Nigeria Netherlands Portugal Morocco Mexico Hungary Switzerland Finland United States 0 Italy United Kingdom France Brazil Mauritius -2 -1 0 1 2 3 Austria Hong Kong Germany Current penetration higher than average (in std. dev.) Philippines Kenya United Arab Emirates Japan -1 „Poor Fellows" „Advanced Losers" NL real growth 94-04 smaller thanaverage (in std. dev.) -2 Note: Size of bubble relates toinsurance market size

14. Challenges of Access to Insurance Services in AfricaFraming the Challenges • Is the Challenge Access to Insurance Services in Africa or Wealth?

15. Challenges of Access to Insurance Services in AfricaFraming the Challenges • Wealth in Africa

16. Wealth and Insurance Penetration in AfricaTop 10 Countries

17. Wealth and Insurance Penetration in AfricaBottom 5 Countries

18. Challenges of Access to Insurance Services in AfricaFraming the Challenges • Access to Insurance for Low Income Groups

19. Challenges of Access to Insurance Services in AfricaNeed for Insurance Among Low Income Groups • Asset protection and life insurance low in priority • Top priorities: food, shelter, clothing, medicine, provision for funerals, education • Perception of risk centres on loss of a job, loss of an income provider, disease or death • Least important perception of risk concerns things that can be replaced e.g. assets • Asset ownership in this sector is low or assets low in value • Even when available, money is fungible leading to skipped premiums

20. Challenges of Access to Insurance Services in AfricaSupply of Insurance to Low Income Groups • This market generally not targeted – insurance is sold not bought and even when bought, it’s a grudge purchase • Existing insurance products designed for commercial and higher income groups • Experience of the product may have been poor (repudiated claims, complexity, policy language or just bad service) • High friction costs in the value chain: premium collection, claims handling, large number of policyholders against low premium volumes • Lack of property rights and legal ownership of assets renders them “dead capital” that cannot be traded and hence not insured • Intermediation replaced by “tick-the-box” intermediation with no explanation of the product or terms and conditions

21. Challenges of Access to Insurance Services in AfricaCompetition to Insurance Solutions - Coping • Self-insurance • Extended family support especially in rural areas • Accrual of social capital as an investment • Borrowing from relatives, employers and even money lenders • Looking for alternative “livelihood” opportunities • Distress selling of assets like livestock and other property • Distress migration - to urban areas or even other countries

22. Challenges of Access to Insurance Services in AfricaThe South African Example • Access to Insurance for Low Income People

23. Financial Sector Charter • Financial Sector Charter • Framework and principles upon which BEE will be implemented in the Financial Sector • Charter Committed Financial Institutions to transform in : • Human Resources development • Procurement of goods and services • Access to financial services • Empowerment financing • Ownership and control • Corporate social investment

24. Financial Sector Charter 3. Access to Financial Services 3.1 Transactions savings, products and services 3.2 Bank savings, products and services 3.3 Life assurance products and services 3.4 Collective investments products and services 3.5 Short-Term risk insurance products 3.6 Origination of : Home Loans Agricultural Loans SME Loans 3.7 Consumer education Target LSM 1 – 5 LSM 1 – 5 LSM 1 – 5 LSM 1 – 5 LSM 1 – 5

25. Financial Sector CharterAnnual Review – The FSC 2007

26. Challenges of Access to Insurance Services in AfricaConclusion • Wealth drives insurance penetration and eases access • Low income or poor communities have evolved COPING mechanisms to address their exposure to risk • Where there is a FELT NEED, financial services will be consumed even by low income groups • Replaceable assets rank lowly in priority regarding perception of risk, made worse by their untradeable status • In the case of South Africa, banking and life insurance have had better success than non-life insurance • A sustained and concerted effort is called for to achieve penetration in low income groups even where there is a FELT NEED.

27. Thank you for your attention

28. Diversified structure – Diversified risk Salute Munich Re Group Munich Re Group Reinsurance Munich Health Primary insurance Asset management The above is a selection of companies operating in the relevant field of business.

29. Strong growth in life insurance worldwide Gross life and non-life insurance premiums worldwide in US$ bn Growth `06 CAGR*`97-`06 US$ bn Life 4.3% 4.6% Non-Life 3.0% 3.2% GDP 3.9% 3.1% In last the last 25 years global life insurance has grown stronger on the average than non-life insurance and the overall economy. *CAGR = inflation-adjusted compound annual growth rate 1996 – 2005. Source: MR Economic Research.

30. Rising importance of life insurance in the global economy Global life insurance penetration (GWP in % of GDP worldwide) % Global average of 4.1% in 2006 ■ Long-term trend 2006 From 1980 up to 2000 global penetration rose fast. Growing wealth leads to higher saving rates and higher demand for risk protection (Maslow‘s hierarchy of needs) + other favourite framework conditions. Source: MR Economic Research.