Despite the best efforts of sub-Saharan African (SSA) insurers, most African citizens and small businesses do not yet have insurance. Our recent research in eight countries – Kenya, Ghana, Nigeria, Rwanda, Ethiopia, Zimbabwe, Uganda and Malawi – shows that more than two-thirds of these populations remain without any form of insurance. This number reduces substantially if compulsory insurance is not considered. Many of the insurers that we spoke to reported that they struggle to make inroads into lower-income, less easy-to-reach market segments and face harsh competition in compulsory insurance markets, to the extent that it threatens their bottom line.  

Evidently, business as usual isn’t enough to create an inclusive insurance market that serves the resilience needs of a broad base of the economy. Doing so asks for a new way of conducting insurance business, in other words, innovation is needed. But what is required to build innovation into the fabric of an insurance market? And what (more) can regulators do to support this? 

Cross-country portraits. Our eight-country study aimed to help answer this question by painting a portrait of the current state of innovation in these markets and investigating the underlying drivers and barriers to innovation. It was commissioned by FSD Africa to inform the work under the R3Lab that supports regulators on the continent in their market development mandate. This blog shares the learning. 

Innovation not yet entrenched. The exercise showed us that, though there are notable examples of innovation in alternative distribution partnerships, the use of technology (including WhatsApp chatbots, use of artificial intelligence and Internet of Things applications) and product innovation in all the countries, innovation is not yet part of the fabric of the market. Established market players largely innovate to improve system efficiency and to better serve their existing customer base. While necessary, this type of innovation does not extend the frontier of the market into the underserved population. Insurtechs, likewise, are mostly focused on providing business-to-business services to insurers and are not yet leveraged for mass market penetration. 

Correlated to level of market development. We also see that the level of innovation is closely related to the level of market development more broadly. As the diagram indicates, those countries at a more advanced level of insurance market development tend to also have higher levels of innovation.  

Innovation and market development snapshot 

Understanding the full picture. What lies behind this emerging innovation portrait? The relationship with market development means that efforts to enhance innovation cannot be pursued in isolation, it all forms part of the bigger market system. Thus, to fully understand the state of innovation in each country context, and to be able to compare drivers of innovation across countries, it is necessary to consider the complete ecosystem for innovation. An innovation enabling ecosystem requires various elements to be in place:  

• On the market side, it requires a strong talent pipeline to spur innovation, coupled with the right mix of market players to form workable partnerships for innovation, and access to finance for innovators throughout the development lifecycle of the firm – be it for incumbent players needing to invest in innovation, or for start-up innovators. It also asks for a digitally and financially literate population ready to take up innovation. 
• On the regulatory front, an enabling, test-and-learn regulatory framework is needed, as well as proactive supervisory support for innovators and new market entrants. This could take the form of transparent and timely licensing procedures and soft guidance on how to interpret regulation in the context of innovation. It also entails a proactive stance by the regulator in facilitating engagement and collaboration between actors in the market, and in prompting the market to innovate. 
• Finally, innovation can only thrive if the necessary underlying infrastructure is in place, including accessible, reliable and affordably priced electricity and network connectivity. 

Shared constraints. The innovation ecosystem assessment in each country showed several shared challenges:  

• Structural constraints: Each country faces constraints in the broader country context that set the parameters for innovation and that should be carefully considered when designing a regulating for innovation approach. Notably, the cost of mobile data continues to inhibit digital insurance innovation and distribution, low awareness and a lack of trust among the target market impede uptake and the market is plagued by large technical insurance and STEM skills gaps. 

• Market engagement constraints: Across the study countries, difficulties in forming and sustaining partnerships between insurers, aggregators and distributors remain a challenge. Incumbent insurers tend to be conservative and risk-averse in their investment allocations, and innovators often struggle to source funding to take ideas to market. There is also still generally a limited understanding of the needs and realities of underserved market segments such as MSMEs and the product development focus is largely on off-the-shelf products, rather than bespoke approaches tailored to specific customer segments. 
• Enabling environment constraints: Where the regulatory and supervisory enabling environment is concerned, a lack of clarity on remote onboarding of clients, digital servicing of policies and alternative distribution partnerships are noted as key challenges. Furthermore, traditional licence categories mostly do not cater explicitly for new types of players that do not neatly fit into the insurer, broker or agent mould. Where regulatory sandboxes have been launched to prompt innovation, the results have by and large been disappointing; neither are microinsurance regulatory frameworks optimally utilised yet as a space for innovation. 
• Supervisory challenges persist: Prospective market entrants, notably insurtechs, still find it challenging to navigate the supervisory landscape and to know who to engage with. Supervisors have become much more proactive in recent times in how they engage the market, but communications efforts are not yet serving the optimal purpose. These constraints stem at least in part from resource and capacity constraints, meaning that most regulatory authorities have not yet been able to translate their innovation mandate into dedicated institutional capacity, such as via a unit tasked explicitly with innovation. Finally, supervisory monitoring systems are not yet set up for granular tracking of innovation. 

A joint effort. What does this mean for ecosystem actors who want to entrench innovation? The innovation ecosystem framework provides a lens for pinpointing where the biggest gains may be within the unique country context – such as a broader view on innovation and risk by insurers and deliberate efforts by regulators to explore new ways of engaging with the market to build regulatory and supervisory process certainty, to spur partnerships and to coordinate more effectively on innovation matters.  

Mutual learning. Development partners continue to be an important player along this journey: helping to build capacity, convene stakeholders and inject ideas through peer exchange. We’re privileged to have been part of the initial exercise to inform the FSD Africa R3Lab. Now we look forward to seeing how the R3Lab will help change the innovation picture in Africa.