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Microinsurance Ready To Disrupt African Insurance Industry

Image: Business Africa Online

By Marius Botha, Group CEO of aYo Holdings

When it comes to insurance, there are few more exciting markets to be right now than Africa. Before COVID-19 struck, McKinsey predicted the African insurance market would grow at around 7% per year between 2020 and 2025. That’s nearly twice as fast as North America and three times faster than Europe.

The pandemic slowed that growth to some extent. But we’re still seeing significant innovation in the African insurance sector, where fintech insurers like aYo are using technology to reach previously underserviced markets across the continent, making microinsurance products available through mobile phone networks.

With the exception of South Africa, traditional retail insurance remains largely undeveloped on the continent. But Africa is a prime market for microinsurance, which is small, rapidly underwritten financial protection against a specific risk over a relatively short period of time – like hospital cover for accidents, for example. 

Its growing popularity is giving millions of Africans access to life and hospital insurance for the first time. And while microinsurance started out largely being targeted at under-insured people, it’s only a matter of time before it moves up the value chain to disrupt the traditional insurance sector.

One of the biggest challenges facing the traditional insurance industry is to develop products that are suitable and accessible to people with lower incomes and younger generations with different needs. That’s why we’re increasingly going to see fintechs creating completely new kinds of insurance that will meet the dynamic needs of so-called millennial and GenZ audiences, disrupting the traditional model and increasing the user base of people insured in the process.

Right now, we’re seeing several trends combining to create a perfect storm of growth for the African insurance sector.

A surge in mobile coverage

The key to the growth of the microinsurance market on the continent has been the rapid expansion of mobile network providers, which provide the ideal delivery mechanism for the spread of the product. Insurance in the palm of your hand? It doesn’t get faster, more convenient, or easy to use than that.

A joint venture between telecommunications giant MTN and financial services group Momentum Metropolitan Holdings (MMH), aYo’s MTN connection has proven invaluable not only to drive access to markets, but to provide credibility and trust in the relatively new brand.

A growing digital economy

At the same time, we’ve seen Africa’s digital economy grow exponentially over the last year, largely driven by Covid-19. The pandemic has dramatically changed consumer behaviour, and consequently, how insurers interact with clients.

More than ever, consumers don’t want to sign paper forms, or stand in queues. They want to access their financial products quickly and easily from their mobile devices – and here, microinsurers have proven agile enough to deliver the right products through this channel. At the same time, technology is making it possible for higher levels of product customisation than ever, with the ability to meet a growing range of niche needs.

A vast under-insured population

Perhaps the most transformative aspect of microinsurance is that it protects those who need it the most. People with lower incomes need insurance even more than the middle class, because they are more vulnerable and have a smaller cushion of resources to draw upon in times of need. Having insurance shields users from the type of economic shocks that would otherwise have kept them locked into an endless cycle of poverty.

Mix together a boom in mobile coverage, a thriving digital economy and an underserved population, and the ingredients are in place for an insurance revolution. By providing insurance to millions of Africans for the first time, innovative fintechs and microinsurers are truly driving financial inclusion across Africa and making a tangibly positive difference to people’s lives.

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