This article was originally published in the Africa Report on 23 November 2020
The COVID-19 pandemic has shone a light on the need for the African insurance sector to demonstrate its critical role in supporting people and businesses. The pandemic has been the most severe risk event in Africa in years, but many insurers have not delivered on their promise.
If the sector is to improve the narrative and rebuild trust, bold changes need to be made.
Over the past few months, we at FSD Africa have had discussions with over 80 insurers, reinsurers, regulatory authorities, associations and technical service providers across 27 countries in Africa to assess how the sector has been impacted by and is responding to the COVID-19 crisis. The broad consensus is that insurers have not fulfilled the role that the sector ought to play in responding to large systemic risk events.
Many businesses and households paid their premiums thinking they were covered for big risk events like the pandemic, but are now being forced to take general insurers to court to seek redress. In March, the Insurance Regulatory Authority in Kenya announced that all health-related COVID-19 claims would be honoured by insurers. Despite the initial agreement, as COVID-19 related health claims started trickling in, the industry began to backtrack on its commitmentJuly.
Some insurers are now turning away insured individuals who have medical bills worth thousands of shillings, saying that COVID-19 is a pandemic which is not covered by existing health policies. This is one of many examples where the insurance industry has struggled to deliver on its promises at time when it is needed most. As a result, trust is being eroded and many policyholders – whether it be businesses or individuals – are quickly becoming disillusioned with the sector.
However, there are some examples that do tell a more optimistic story. Companies like Prudential Life, which operates across eight African markets, added free new COVID-19 life insurance cover to existing and new clients and staff across their markets. Other companies including Hollard Mozambique and Naked Insurance in South Africa provided relief measures such as premium holidays and reductions to help take some of the financial burden off customers.
Rebuilding trust
In Africa, insurance is already anstry that individuals and businesses are wary of. Many often question its value: why pay money towards something that may not actually happen? Many are willing to take the gamble instead. Unfortunately, COVID-19 has, for the most part, exacerbated this perception, leaving the insurance industry at an all-time low.
With this low comes an opportunity for the insurance sector to step up and rebuild trust while adapting to new ways of doing business. Regulators have a key role to play. In instances where market consolidation is inevitable, regulators must act proactively to unwind weak insurers in an orderly fashion, ensuring that clients remain protected and their claims are honoured. If this transition is well-managed, there is potential to better facilitate market development and investment in products.
The insurance sector should prioritise innovation. The pandemic has highlighted the limited reach of insurance on the continent and the lack of products designed well enough to offer consums value and effectively address their risks and realities. Regulators should engage and support innovators as a key part of the recovery.
Meanwhile, insurers should encourage internal innovation and external collaboration with fintech to rethink and reimagine their approach to reaching new customers.
Now is the time for the insurance sector to reflect on how it can build trust in the sector by responding to customer realities and needs, and by meeting customers halfway. With largescale, systemic and society-wide risks like climate change continuing to gain prominence in the public conversation, insurers should use this time to enhance and accelerate efficiency.
The sector must consider resilience holistically and go beyond offering insurance products. Insurance alone will never be a sufficient mechanism to deal with major risks like pandemics or climate risks. We need to think about risk layering and public pools, consider options for risk prevention, management and mitigation by both pubic and private players. This applies at the macro and micro level. Micro and small businesses have been among the worst affected by the pandemic. They need tangible solutions that help them to understand, prevent and manage their risk – not just basic insurance policies that give poor cover for specific risks.
These are just recommendations. The choice to move forward is up to insurance companies. Do they continue with the old way of doing business or do they reinvent themselves to become more relevant to customer and business needs? What is clear is that insurers must adapt their business for the inevitable large-scale risks to come.
People’s Pension Trust (PPT) has received funding of up to GBP 500,000 from FSD Africa Investments to expand pension coverage and access to informal workers in Ghana. This will be done by developing innovative approaches specifically designed to foster inclusion in financial and social protection systems.
The funding will enable People’s Pension Trust to innovate through behavioural science, human-centred design, data analytics and artificial intelligence, ultimately developing groundbreaking pension products that meet the needs and aspirations of underserved constituents such as smallholder farmers, drivers, market women, head porters – among others.
This continued partnership with FSD Africa Investments provides the necessary runway for PPT to address old-age poverty especially among women that are most vulnerable. Through financial literacy programs and pension education coupled with incentive-led push for savings, PPT aims to impact economic growth by helping maintain the push for savings despite the covid-19 pandemic.
At FSD Africa Investments, we work to rece poverty by supporting innovative propositions touching on the financial sector that we believe will transform Africa’s financial markets. The PPT story is one such proposition that touches on micro-pension and by extension savings and we believe will have significant impact in the lives of Ghana’s informal workers and possibly go beyond the borders to the many who could use the same service across Africa.
Anne Marie-Chidzero, Chief Investment Officer, FSD Africa Investments
Our ambition is now to scale and to replicate our business model across the region, providing millions of informal sector workers with pension cover over the next few years. Securing this investment from FSD Africa Investments is therefore a significant step to making this possible. It certainly gives us a positive outlook for the coming years as we work to ensure that no one is left behind in the financial inclusion agenda.
Saqib Nazir, Chief Executive Officer of People’s Pension Trust
In addition, loyalty and reward programs will be rolled out to encourage uptake of digital savings options – like Auto Debit and Direct Debit, to ensure consistent savings-, and the PPT team will focus on regulatory engagements to drive policy change and the inclusion of global best practices and industry trends, accelerating real progress for our members.
 
