But in Africa, there is more at stake

A key imperative identified by our deep-dive studies across four sub-Saharan African countries was that for the insurance sector to contribute to sustainable development, policymakers and regulators need to take a more active role in leading and enabling innovation in their markets. Never has this imperative been truer than now – as the world is grappling with the ongoing COVID-19 pandemic. 

COVID-19 is disrupting the way that many African insurance operations are run. While the pandemic has certainly thrown underwriters and regulators for a loop, it has ultimately served as a catalyst for enabling insurance innovation on the continent – although there is still more to be done. This blog unpacks how policymakers and regulators have worked to facilitate innovation amidst the COVID-19 pandemic, and what lessons can be taken into the future.  

Pre-COVID-19 context: lacklustre innovation  

The reality is that the insurance sector in Africa has not made a significant contribution to the region’s development to date, with penetration accounting for 2.8% of the continent’s GDP and insurance take-up levels of the adult population sitting below 10% for most countries. There has been little innovation in addressing the risk needs of consumer and enterprises under traditional insurance business models, and research has shown that many insurers tend to focus on, and compete for, compulsory lines. This leads to cannibalistic competition and, often, solvency concerns.  

Many insurers’ business operations, ranging from product sign-up to premium collection to claims payment, remain reliant on physical contact between themselves and the end client, particularly when the end client is middle to low-income.  

There is consensus among policymakers, regulators, and underwriters that innovation in insurance markets is critical, however, innovation on the continent remains limited in scale and is typically incremental.  

The COVID imperative 

With COVID-19 lockdowns and other containment measures, insurers have been forced to reconsider the way they do business, particularly for processes that had been done in person: sign-up, premium collection, claims pay-outs etc. Innovation has arrived – whether insurers wanted to innovate or not. For example: 

• When COVID-19 started, one South African insurer had a pre-existing digitisation plan that was designed to take place over three years. They were able to execute this plan in just three weeks at the onset of the pandemic.  
• Prudential Life, which operates in eight countries in SSA, developed a new, free COVID-19 life insurance cover for existing and new clients as well as staff across their markets. 
• Hollard Zambia created a free COVID-19 rider benefit, added on to its life insurance policy for a period of six months. 
• In Nigeria, the insurance industry developed a group life product for frontline health workers. Insurers have created an insurance pool with a stoploss, where the amount paid out is limited to the premiums they have collected. 
• In South Africa, Discovery used telematics to provide discounts to customers who drove less because of lockdown measures and Naked Insurance automatically reduced car insurance premiums.  
• MicroEnsure, which provides health and funeral insurance to farmers in Kenya, in partnership with One Acre Fund, changed the way in which they process claims and now allow farmers to complete claims forms by hand, take pictures of the completed form and then send those photos to claims officers.  

Role for context–relevant policy and regulatory tools  

Policy and regulatory tools have played a critical role over the past year in enabling insurers to innovate and move away from requiring physical engagement with their clients.  

Enabling digital payments infrastructure  

Rwanda provides a great example, where the National Bank of Rwanda (BNR) instituted a rapid set of policy changes to advance payment digitisation in the country. During March 2020 – May 2020, there were (1) zero charges on all transfers between bank accounts and mobile wallets; (2) zero charges on mobile money transfers; (3) zero merchant fees on payments for all contactless point-of-sale mobile transactions and (4) an increase in the limit for individual transfers via mobile money wallets. The removal of fees resulted in a change in consumer behaviour – with consumers increasing their use of digital payments. By late April, mobile-money users were making five times the number of payments than before the pandemic hit. Insurers in Rwanda have been afforded an opportunity to leverage this change in customers’ behaviour and willingness to use digital payments to change from a traditional approach to a more digital approach to premium collection and claims payments. However, the sector still lags in the uptake of digital processes relative to other financial service providers.  

Regulatory clarity on e-signatures  

In many jurisdictions in Africa, electronic signatures, and thus completing sales digitally, remain a point of uncertainty. In some jurisdictions, like Ghana and Nigeria, e-signatures are allowed but the insurance regulator has not communicated their position on them publicly, so uncertainty persists among industry players. In other jurisdictions, like Zambia, the legality of e-signatures is not referenced in law; this uncertainty results in insurers being unwilling to take the risk of using e-signatures. Both of these instances result in insurers being constrained in their ability to innovate and move towards digital sales. 

Restrictions on movement interrupted physical sales by agents and brokers, who are the main distribution channels for insurers in SSA. This forced regulators and insurers alike to rethink how to approach the selling of insurance, and in some instances, allow for this to be done digitally. For example, in Uganda and Namibia, the regulator indicated that e-signatures would be permitted for a set period. In other instances, regulators, like the Insurance Regulatory Authority (IRA) in Uganda, gave waivers to specific insurance companies to enable them to utilise e-signatures, thus enabling these insurers to conclude sales digitally. One multinational insurer noted that by May 2020, regulators in eight different countries in which they operate allowed for the use of e-signatures to conclude sales. While this is a step in the right direction, it is imperative that regulators in SSA provide more clarity on the use of e-signatures over the long term.     

Encouraging technological innovation and collaboration 

Regulators have also made allowances regarding specific technological innovation, such as telemedicine. Telemedicine allows patients to consult doctors virtually and is particularly valuable during a global pandemic when physical interaction is discouraged. Recognising this, the Health Professions Council of South Africa (HPSA) released guidelines on the application of telemedicine during the COVID-19 pandemic, which removed the requirement for in-person health consultations. These guidelines paved the way for telehealth services to take place – and as a result, the medical scheme Discovery and the mobile network operator Vodacom collaborated to launch a free consultation app called Discovery DrConnect. 

Proactive engagement to facilitate innovation 

Regulators are also able to support innovation in the market simply by facilitating the engagement between different partners and communicating openly – and again COVID-19 added to the imperative for doing so. Facilitating engagement requires limited resources but can still have significant impact by leveraging the strengths of other institutions.  

We already see several examples of how regulators in SSA are using their convening power to signal support for innovation and open the communication channels with industry.  

In November 2020, the IRA in Uganda, in collaboration with Financial Sector Deepening (FSD) Uganda and the Uganda Innovation Village, hosted a virtual innovation workshop to encourage innovation and foster collaboration in the insurance market.  

In May 2020, the Prudential Authority (PA) of South Africa began holding weekly virtual meetings with industry associations to provide regulatory certainty and spur dialogue on front–of–mind issues during the pandemic. The IRA in Uganda, in turn, provided the industry with updates on their COVID-19 response in its quarterly newsletter. In Kenya, the IRA provided COVID-19-related updates on its social media accounts. In Nigeria, NAICOM held a webinar on the impact of COVID-19 on insurance.  

However, the need for proactive communication goes beyond responding to the immediate COVID-19 uncertainty. Some regulators are already gaining ground. For example, in May 2020, the IRA in Kenya demonstrated its commitment to innovation by launching a regulatory sandbox to facilitate testing of new ideas and technology within the insurance sector, while the regulator in Malawi has completed an innovation assessment to inform its innovation action plan. The Insurance Commission in Ghana has a proactive stance in communicating with industry that predates the pandemic. 

Innovation after COVID-19? 

COVID-19 has held up a stark mirror for the insurance sector in Africa. Never has the need for innovation been clearer: insurers have been forced to rethink their business models and regulators are rethinking how to promote innovation while protecting consumers. As the examples in this piece have shown, the response from regulators has been positive, including temporary allowances and fast-tracking of test-and-learn approaches. There has also been more proactive engagement and collaboration between regulators and industry in the quest for innovation. 

But this is not just about dealing with a crisis; it is a watershed moment. COVID-19 merely emphasised pre-existing challenges. It is important to now use the momentum gained to create a sustainable market shift. This requires market players, policymakers and regulators alike to step up and be proactive in how they engage with one another to unlock the sector’s ability to meaningfully contribute to economic development.  

This work forms part of the Risk, Remittances and Integrity programme, a partnership between FSD Africa and Cenfri.