DISABILITY & LIFE INSURANCE INNOVATION IN SUB-SAHARAN AFRICA – BEYOND 2021

The latest insurance research and market intelligence publications show that the Sub-Saharan Africa long term insurance market has good growth potential conditional to one factor: strong innovative strategy. Innovative strategy in this context refers to a less capital intensive but intuitive managed-healthcare focused life insurance model that is digitally driven. The holy grail is how the clinical outcomes of risk-prevention rather than risk-management and incentivized behaviour shifts playout actuarially, leading to reduced claims ratios and lower premium rates. Even in the advent of the COVID-19 pandemic, innovative insurers can remain afloat because disability and life insurance have low downside risk with few links to financial instability unlike other forms of finance.

One highly regarded market research firm published that 15% and 31% of Africa’s insurance companies plan to incorporate data analytics and robotics. Although proportionately small in absolute terms, insurance strategic consulting firms anticipate an acceleration in innovation adoption. There is a need for ongoing strategic innovation in order to remain competitive, particularly with the advent of the COVID-19 pandemic. Societal and structural changes in the Sub-Saharan economy have always compelled insurers to transform their operating and business models in an innovative way. Life segment digital insurance and managed healthcare in Southern Africa has been accelerated by the transition towards a digital economy across the SADC region.

The most mature insurance markets within the SADC region i.e. South Africa, Namibia and Botswana, are controlled by the financial services group and insurer Sanlam which is the largest disability and life insurance company in Africa. It has a dominant insurance market positions in 15 sub-Saharan countries and over 80% of insurance companies in its cluster plan to offer services through platforms optimized for mobile devices.

The dominant players in the insurance space embrace insurtechs and have ties with fintech. The integration between fintech and insurtech has become more manifest. It becomes apparent that adopting an innovative digital strategy is becoming a strategic imperative for insurers in order to maintain or grow their market penetration. The integration between fintech and insurtech is what has enabled South Africa’s first and fastest growing digital bank, TymeBank, to on-board one million clients as of December 2020.

The persistent positive year-on-year market size for the insurance industry in Sub-Saharan Africa from 2014 to 2020 as well as the Value of Gross Written Life Insurance Premiums in South Africa from 2000 to 2020 acutely declined with the advent of COVID-19. The advent of the pandemic also brought about decline in the overall direct premiums for both individual and group life businesses for the respective COVID-19 survey time periods. The current metrics in the disability and life insurance competitive landscape support the view that insurers need to explore novel ways of reducing the loss ratios using big data and Artificial Intelligence.

The digital revolution in life segment digital insurance and managed healthcare has epicentres in South Africa and Kenya. The insurers in these countries have a strong digital strategy and this has resulted in sustainable business growth despite operating in highly competitive landscape that is getting more open to disruptive technologies and unconventional competitors. An informal distributed innovation ecosystem with epicentres in South Africa and Kenya has slowly emerged through tech hubs, peer referrals and word of mouth among insurtech researchers and founders in Africa. The growth of the insurtech ecosystem is sparking the flames of innovation in more African entrepreneurs in the insurance space. True to the leadership adage, innovators are made rather than born. Many of the 52 insurtechs in South Africa are research based, often engaged in joint research or contract R & D. The 80 tech hubs in South Africa are providing a network of innovation enablers, driving business development and cross-collaboration at continent scale.

Historically, West Africa has lagged behind Southern Africa and East Africa in insurance innovation. Market intelligence and research reports for the forecast period 2020-2025 demonstrate that the West Africa market is the most contestable south of the Sahara. One gets the impression that a vacuum for a differentiated insurer with an aggressive innovation strategy exists. Southwards, the SADC market had already been leading the rest of Africa (apart from Kenya) in innovation before the advent of the COVID-19 pandemic.

One of the foremost innovative South African insurers that had the first-innovator advantage experienced the fastest ever growth in market share due to innovative digital infrastructure, agile ways to bring innovative products to the market and leveraging technology such as wearable devices and dynamic underwriting. This South African insurer invented the World’s leading health and wellness incentive/rewards programme that helped it undercut the market against traditional insurers. Competitors soon adapted and this enabled the insurers to collectively unlock the potential target market. This is one of the foremost explanations for a comparatively larger insurance penetration of 10.95% for the life segment in South Africa. Without considering South Africa which has a combined insurance penetration of 12.38%, Sub-Saharan Africa has the lowest insurance penetration of all regions in the world at 0.9% of GDP.

South African health and risk professionals have always been early adopters in the disability insurance industry, participating and often leading in world stage research and development in this space. Dread Disease Cover also known as Critical Illness Benefit was invented by a South African cardiac surgeon, Dr M Barnard. The first disability insurance rewards incentive system was started by Adrian Gore. The legacy does not stop there – South African occupational therapists are acclaimed to be the first to have brought pro-active Absenteeism Incapacity Management (AIM), shared-value insurance modelling, disability management and integrated vocational rehabilitation into the long term insurance space. Now with leading ubiquitous digital connectivity and even more rapid technological advancement, the legacy lives on. 

Namibia is the second most mature insurance market with an insurance penetration rate of 7.25%. The downside of this maturity is that these markets have reached or are reaching a plateau in penetration on a backdrop of rising claims ratios – unless innovative digital strategies are implemented. The Namibia insurance market matured rapidly on the strength of product development done in neighbouring South Africa and the fast-growing digital health innovation ecosystem framework.

Botswana is the third most mature insurance market in SADC and one of the more advanced insurance markets in Africa. It has the fourth-largest penetration rate in Africa at 2.8% after South Africa, Namibia and Mauritius. One remarkable metric is that Botswana insurance companies’ total assets amount to 29% of GDP – this is significantly higher than those of most African countries. The latest reports as of December 2020 show that Botswana's insurance penetration recently surpassed that of Kenya which has dropped to a 15-year low of 2.39%. The buoyancy of the disability and life insurance market of Botswana is responsible for the sustained growth with the disability and life segment contributing to 2.5 percent of GDP as of 2019.

The overall low penetration of life insurance in Sub-Saharan Africa suggests strong growth potential and insurance penetration is low for respective national income levels. A review of post COVID-19 Economic Recovery and Transformation Plans of most SADC countries for the periods 2020/21 – 2022/23 emphasize the need for transition towards digital national economies. It is apparent from these plans that SADC countries accept as true that vibrant insurance industry is one of the keys to wider economic advancement. The new and improved availability, accessibility and affordability of life segment digital insurance and managed healthcare solutions at national level will have positive effect on the risk transfer ecosystem. Regulators, insured, insurers and intermediaries are set to be forced to adapt as digital inspired change becomes inevitable. Regulators would have to de-bureaucratize in keeping with the Economic Recovery and Transformation Plans. The non-bank regulatory frameworks of SADC countries are by and large silent on digital insurance specifically but they are generally facilitative of innovation particularly with regards to enabling creation of differentiated products.

Advances in medical care, people living longer and increase in lifestyle conditions imply rising claims ratios but there are innovative ways to reduce the underlying medical insured risk with regards to morbidity and mortality. The claims ratios can be reduced by these innovative strategies to underscore decrease in underlying medical insured risk. 

The consumer has evolved due to mobile penetration, dramatic improvement in backbone infrastructure through connection to the Africa Cable Systems and the rollout of fibre-optic cables. Artificial Intelligence can be applied to simple use cases in the initial processes as data is being gathered and as better understanding of the technology is gained. Insurers can offer a Health and wellness rewards incentive as an embedded product. IoT wearable devices enable insurers to identify and predict risk factors for preventable chronic conditions. These devices produce structured, consistent, machine-readable, actionable and valuable data from anywhere and everywhere – in real-time. An exchange that used to take days, possibly even weeks, can happen in seconds. Digitally conveyed insurance typically leads to expansion in distribution channels and volumes which in turn enables a sharp decline in premium rates.

Disability and life insurance interact in a ‘virtuous circle’ with health insurance and other aspects of the financial services sector. Adoption of digital insurance in the disability and life segments will have positive implications for the medical aid industry and even have positive ramifications for primary healthcare. Improved health status of the insureds, reduced underlying rise, more cost-efficient employee health benefit plans and improved income protection can be achieved. There is increased insurability due to underlying risk healthcare being more predetermined and controlled by IoT wearables along with a disease prevention model. The disease-prevention model should be structured to reduce the direct and indirect costs associated with lifestyle and chronic disease.

As insurers move into January 2021, an increase in insurers acquiring and partnering with insurtechs is anticipated. Insurance innovation consultants with execution capabilities of a contextualized health and wellness fitness system architecture suited to the life segment are crucial innovation enablers. Such consultants serve as a guiding light and sift through that an assortment of options, matching existing disability and life insurance product structure with innovation deliverables. One can only hope that insurers will have the appetite to experiment. The ‘one-size fits all’ implementation method does not work in the area of insurance innovation and digital insurance. Execution has to be research-based, contextualized and granular in precision and the innovation model must be cognizant of prudence, ethics, compliance and pertinent legislation. If words mean anything, the pie does not get smaller for insurers already operating in a market – it gets bigger; it expands with innovation and digital insurance!

Subject-matter-specialist: Liberty Nobula, Partner - Innovation & Consulting | Disability and Life Insurance