By Peter West and Mayibongwe Sangweni, Financial Institutions Group Client Coverage at Standard Bank
Africa’s insurance sector remains largely underpenetrated, with most markets (apart from South Africa) reporting penetration levels below 3%, compared to a global average of upwards of 7%. Insurance penetration is closely tied to macroeconomic realities and given Africa’s low GDP levels, limited disposable income, and widespread financial illiteracy.
The low penetration comes as no surprise.
The informal sector dominates the African workforce, posing challenges to traditional insurance models. Yet, with the United Nations (UN) projecting the population to reach 2.5 billion people by 2050, the challenge of adapting insurance models to this unique economic landscape becomes increasingly topical.
According to the World Bank, Sub-Saharan Africa (SSA) accounts for 16 percent of the world’s population, but 67 percent of the demographic lives in extreme poverty, making insurance products unaffordable or deprioritised in favour of immediate survival needs. This restricts the development of robust insurance markets and limits the scale at which insurers can operate profitably. Moreover, financial literacy remains a major barrier. Many individuals lack basic understanding of insurance products, leading to mistrust, underutilisation, and poor claims experiences.
Whilst these macroeconomic challenges demand agile strategies and strong institutional backing, foreign investment in Africa’s insurance sector remains robust, highlighting clear investor conviction in the continent’s growth trajectory. A recent strategic alliance between a leading African player and an international insurer highlights the growing momentum across the continent, forming a pan-African financial services powerhouse with a presence in over two dozen African countries, with ambitions to be a leading player in all its markets. This move reflects more than scale; it’s a strategic bet on Africa’s untapped potential in insurance penetration.
Unlocking Africa’s Insurance Growth: What Will It Take?
One pathway to unlocking insurance growth in Africa is through Microinsurance. Low-cost, simple insurance products tailored to low-income households. Typically covering health, life, property, agriculture, or accidents, but with lower premiums, simplified terms, and smaller coverage amounts compared to traditional insurance. This is a product well suited to Africa given its vast informal population.
One of the defining features of Microinsurance in Africa is its reliance on alternative distribution channels tailored to reach low-income and currently excluded, underserved populations.
Traditional insurance is largely dependent on agents, brokers, and physical branches to serve urban, formally employed clients. Microinsurance instead embraces digital innovation to overcome barriers of access, affordability, and complexity. Mobile platforms and Insurtech solutions have emerged as tools to simplify enrolment, reduce costs, and extend coverage to those currently excluded.
This shift is particularly relevant given the dominance of the informal sector across the continent, which accounts for over 80% of employment and drives a significant portion of economic activity. From street vendors and transport operators to cross-border traders and micro-entrepreneurs, these individuals form the backbone of Africa’s commerce yet remain largely outside the reach of traditional financial services. Their resilience and economic contribution make them a compelling target for insurers.
Scaling Insurance Through Mobile Money Integration
Mobile money has unlocked a mechanism to access Africa’s informal sector, revolutionising how millions of people transact, save, and access financial services. With SSA now accounting for over half of the world’s mobile money accounts, with more than 330 million active users in 2023, Africa has become the epicentre of mobile-led financial inclusion. By bridging the gap between the unbanked and the formal financial system, mobile money has become a cornerstone of commerce in the untapped informal economy.
Its widespread adoption, particularly in East Africa (where platforms like M-PESA, Airtel Money, and MTN Mobile Money dominate), has made mobile money an increasingly effective distribution channel.
Kenya, for instance, boasts an 80.8% smartphone penetration rate, and access to formal financial services has surged from just 26.7% in 2006 to 84.8% in 2024 on account of financial technology and innovations, especially in mobile money.
This digital infrastructure has opened the door for microinsurance to scale. By integrating with mobile money platforms, insurers now have a channel to reach low-income and currently excluded populations. Mobile money enables simplified enrolment, frictionless premium collection, and efficient claims processing, often through USSD codes or mobile apps, making insurance more accessible, affordable, and relevant to the realities of the informal sector.
In this context, mobile money isn’t just a distribution tool, it’s the catalyst for inclusive insurance growth across Africa. It aligns with the needs of the informal economy, offering insurers a scalable, trusted, and cost-effective way to deliver protection to millions who need it most.
While Africa faces persistent challenges, ranging from infrastructure gaps to regulatory fragmentation, the informal sector remains a vital engine of economic activity. Within this space, microinsurance has emerged as a promising avenue for growth, particularly through mobile money platforms that have revolutionised access and affordability.
In closing, microinsurance represents a transformative opportunity for Africa’s insurance sector. By embracing innovation, forging strategic partnerships, and prioritizing the needs of underserved communities, insurers can drive meaningful progress toward financial inclusion and resilience. The journey ahead requires commitment, collaboration, and a willingness to adapt, but the potential rewards, for both industry and society, are immense.
As we continue to monitor emerging trends in the sector, Microinsurance stands out as a strategic growth vector with the potential to expand the continents coverage and we believe that it will continue to grow.
