August 8, 2019
In the past decade, the term 'financial inclusion' has been used often, especially in the context of the emerging markets of Africa. It is, after all, a hot topic. Almost every big governmental player, tech giant or private organization wants to dirty their hands by providing financial services to the underbanked and unbanked. We find payments being digitized, microcredit increasing, and digital identities booming. While these products are in high demand by poorer consumers, insurance-enabled financial inclusion has not taken off to the same extent.
The reasons for this are diverse; however, a common thread seems to tie them all. The leading players till now – insurance companies – have not been instrumental in even trying to enable financial inclusion. The majority of the insurance companies have catered to the richer segments of the population or the emerging middle class.
What this has resulted in is unfortunate. Though insurance penetration has improved in the past in other parts of the world, Africa is unique. Despite having close to 16% of the global population, the current insurance penetration in Africa is about 3.5%. South Africa leads with 17%, while others lag. Kenya has a penetration of about 2.9% and in fact, leads East Africa with this low statistic. It is followed by Rwanda at 1.7% and Tanzania at 0.7%.
The traditional insurance providers of Africa have failed in reaching the financially excluded. The fact of the matter is that insurers in the continent have been slow to tailor their products and services to the local realities. Their operations are built in ways similar to those in other geographies – like the US or Europe. Very often, insurance companies have long and complex contracts and are distributed through costly networks of agents & brokers that only reach the urban elite.
No wonder insurance providers in Africa haven’t been able to cater to low-income groups. They feel that ...