The East African insurance sector, still dominated by non-life insurance, has been on a rising trajectory, despite macroeconomic and geopolitical challenges in the region, says the global professional services firm, Deloitte.
In the report, titled "2024/25 Deloitte Africa Insurance Outlook", Deloitte says that the region has experienced an increased demand for risk transfer solutions and insurers are focusing on digital and market operation transformation.
The insurance penetration rate has been on the rise but is still relatively low compared to other markets such as southern and northern Africa. The total insurance penetration rate for the region in 2022 stood at 1.39%, with insurance penetration at 2.14% in Kenya, 0.62% in Tanzania, 0.74% in Uganda, and 0.3% in Ethiopia.
In a section on several East African insurance markets, Mr Charles Luo, partner, Audit & Assurance, and Mr Timothy Machira, associate director, both of Deloitte Africa’s East Africa Financial Institutions Services Team, highlight the following pivotal insurance trends in the region:
• Data analytics
• Technology and innovation in the insurance industry
• The regulatory environment
• ESG reporting and climate change impact.
Data analytics
Although there is a clear argument for the implementation of data analytics in insurance companies, its wholesale adoption comes with challenges. Currently, the main challenges facing insurers are the poor quality of data and the high cost of changing their data management systems and processes.
Technology and innovation
Rapid technological advancements are ushering in a new era in the insurance industry. With the constant improvements in and development of artificial intelligence (AI), insurers are improving the efficiency of their operations and developing new products. However, responses to the potential role of generative AI in the industry remain mixed. While some anticipate it as a game changer and the future of insurance, others remain cautious, considering it in need of further development, or expecting minimal impact.
The regulatory environment
As of 1 January 2023, the new financial reporting standard for insurance contracts, IFRS 17, has taken effect, replacing IFRS 4. The implementation of IFRS 17 poses some challenges to insurers but also provides opportunities. This change in the regulatory landscape has forced insurers to make comprehensive changes to their reporting practices and to the systems they use to ensure compliance with the new standard. Furthermore, governments may revise certain local regulations, necessitating insurers to adapt their business operations accordingly.
ESG reporting and climate change impact
With the increased focus on the effects of business practice on the environment, insurers must incorporate Environmental, Social, and Governance (ESG) factors into their operations. With climate change becoming a particular concern, insurers need to begin actively exploring ways to mitigate risks arising from extreme weather conditions.
In East Africa, some insurance market players have started adopting more sustainable practices by offering microinsurance products. Over the past five years, the number of insurance and InsurTech companies targeting low-income earners has grown. This trend has been boosted by policies like the “Nairobi Declaration of Sustainable Insurance,” an Africa-wide agreement to develop more sustainable and accessible insurance products.
To accelerate growth as well as increase penetration, insurers must emphasise data-driven insights, use technology in innovations, adapt to the evolving regulatory environment, and employ better practices by implementing more ESG considerations in their businesses, say Mr Luo and Mr Machira.