New regional insurance regulations, alongside a rise in activity in the agricultural sector, could pave the way for microinsurance providers to push into an as yet untapped market.
The new regulations, introduced in April 2012 by the Inter-African Conference on Insurance Markets (Conférence Interafricaine des Marchés d'Assurances, CIMA), are aimed at promoting the growth of microinsurance in member states by creating incentives for investors. CIMA also hopes they will help increase consumer awareness of insurance products, something that is lacking throughout most of the continent.
Microinsurance is a term applied to more affordable insurance policies that provide coverage for lower-income populations. Under the new scheme, both life and non-life policies will be allowed, with the latter including coverage for very specific segments, such as agricultural risks which hedge against harvest losses or climate volatility. These policies fulfil a twofold purpose of providing protection for customers who would otherwise be unable to afford cover, while helping to promote an awareness and understanding of insurance among populations largely unacquainted with the services and products available.
The new regulations set a maximum of CFA3500 (€5.34) per month for microinsurance premiums, which will be adjusted on a country-by-country basis as the segment grows within the conference's member states. This figure is about 25% less than the average monthly premium for conventional insurance in Gabon, which stood at CFA4632 (€7.06) in 2012.
Under the regulations, existing insurance companies, together with non-insurance entities including NGOs and microfinance groups, will be authorised to offer microinsurance plans in CIMA countries. Non-conventional insurers will be required to have minimum capitalisation of CFA500m (€762,000) to begin operating. Claims will also have to be processed in a timely manner. For life services, the new rules specify that savings must be transferred within 10 days of death.
The regulations also oblige all microinsurers to report key performance indicators, which have been defined by the Microinsurance Network, a global organisation that promotes the development of insurance products for low-income communities. The indicators include both growth and debt ratios, alongside average claim-handling times.
While Gabon is now considered an upper-middle-income country by the World Bank, its largely uninsured population, income disparity and growing economy make it an attractive destination for microinsurance firms. Insurance penetration in Gabon stood at just 1.3% of GDP in 2010, only slightly above the regional average of 1% but far behind continental heavyweight South Africa at 16%.
Gabon's low rate of insurance penetration against its relatively high regional income can be attributed to a number of factors. A lack of awareness of insurance leads the way, followed by a widespread negative perception of insurers. High average premiums, which render policies inaccessible to many locals, have also played a part in preventing take-up.
One area in which microinsurance could have a significant economic impact is agriculture, with many farmers either unaware of the benefits of insurance or unable to pay premiums. This would be in line with the government's broader economic policies, which have targeted growth in the agricultural sector and a reduction in food imports through the Gabonese Agricultural Development and Investment Project (Projet de Développement et d'Investissement Agricole au Gabon).
Assuming improved cultivation and production techniques accompany the anticipated expansion of the agriculture sector, the result will likely be a larger number of self-employed farmers, which in turn will provide a greater pool of potential customers for microinsurance firms. Other offerings, such as life insurance, could prove to be popular as incomes continue to rise.
While the market will be open to entrants that specialise in microinsurance, it is expected that established insurers will be the first to provide the new low-cost policies. There are eight providers operating in Gabon, six of which are subsidiaries of foreign players, including French giant Axa.
According to a 2012 report from global consultancy Accenture, microinsurance has the potential to be profitable for conventional carriers, although it may require local partners and innovative distribution methods. Nevertheless, the opportunity to reach a sizeable and largely untapped market may prove attractive, particularly if firms are able to transition customers to conventional products as they move up the income ladder. Indeed, by providing affordable coverage, the microinsurance segment could play a part in raising awareness of the benefits that having cover provides, paving the way for greater take-up of conventional insurance offerings and driving growth across the industry.
© Oxford Business Group 2013
