Insurance growth & investor potential in EMs says Axco report

Emerging Markets

The money spent on insurance in emerging markets (EMs) still lags far behind traditional markets according to a new report from Axco which argues public-private partnerships (PPP) could unlock huge opportunities in Africa and elsewhere for (re)insurance companies and global investors. This can only happen, however, if education, regulation and government support are allied to industry engagement.

In 2015 emerging markets (EMs) accounted for just over 7.26% of global insurance premiums, according to an Axco Insurance Information Services report entitled ‘Embedding Insurance in the Frontier Markets: Partnerships for Emerging Opportunities’.

The per capita spend on insurance in EMs, excluding China, is a mere 3.21% of that spent in advanced markets, finds Axco, and the average insurance penetration in emerging economies actually decreased by 0.09% during 2015. Public-private partnerships (PPP) are needed to grow the market.

The Axco report highlights that limited insurance penetration, particularly among low-income households, is due to a lack of awareness of basic insurance products and associated benefits. But this offers untapped growth and investment potential, argues Axco, particularly in South Asia and Sub-Saharan Africa where there are growing populations and middle classes. The key to unlocking it is public-private partnerships (PPPs) to ensure better understanding of insurance products and uptake.

Between 2015 and 2050 there is a projected global population growth of 1.3bn people in Africa. Axco believes that developing productive PPPs and understanding the local cultural, recruitment and regulatory landscape, will be critical in gaining access to these emergent insurance markets.

Examples of successful PPPs are highlighted in the report. The African Risk Capacity (ARC), for instance, has enabled the implementation of an early response programme to affected communities in advance of humanitarian aid. ARC emphasises the need for premium support mechanisms to ensure participation and appropriate levels of coverage, such as embedding premium payments into a country’s national laws and budgeting process, as well as an innovative approach to financing.

A joint Asian Development Bank (ADB) – Japan Fund for Poverty Reduction (JFPR) in Bangladesh, which is also examined in the report, details the need to develop micro-insurance to help imbed insurance concepts in a passively hostile population.

In particular the report looks at how micro-insurance can be used to reduce poverty by addressing common individual and catastrophic shocks. However, legal and regulatory frameworks, especially in the supervision of micro-insurance activities, need to be developed by collaborating with local governments to enable international reinsurance companies can enter the market.

“As conditions in established markets remain challenging, (re)insurers are exploring opportunities to diversify. Entering new and high growth markets is an increasingly attractive option,” says Tim Yeates, managing director at Axco. “Knowledge of the local market is imperative and leveraging this knowledge to develop Public-Private Partnerships in order to help educate local people on the benefits of insurance is the key to unlocking growth opportunities.”

“Working with local partners and governments to ensure that regulation is welcoming to foreign investors and others entering the (re)insurance market is also vital,” he concludes.

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