Insurance development is determined by looking at the insurance penetration rate and density of a given country or region. Insurance penetration rate refers to the ratio of the total value of premiums underwritten in a particular year to the Gross Domestic Product (GDP) of a given country. Whereas, insurance density is the ratio of the total premiums underwritten in a given year to the total number of population in that country (as at the same year.)
Over the years, in sub-Saharan Africa, the insurance penetration rate, (the measure of the insurance industry’s development) has been on the rise. For example, according to Statista(2017), the Kenyan penetration rate was 2.83%, Rwanda 1.74%, Namibia 6.69%, and South Africa 16.99% among others. In 2019, according to Africa Financials, the Kenyan insurance penetration rate had grown to 3%.
However, in the wake of the coronavirus (whose effects are cutting across all sectors of the economy), this development is going to be halted, gnawed and left in a very bad situation and mostly in Sub-Saharan Africa because the insurance industry has still been at the infancy stage. Hard economic times, disrupted cultural practices and norms, and poor products development are some of the ways through which the industry’s normal operation will be switched to a ‘new normal.’
Hard economic times.
Most countries in sub-Saharan Africa are developing countries which means that they are poor. Due to their poor economic growth, it has been a challenge to the growth of the insurance industry. The big percentage of their population lack purchasing power because to them insurance is not a priority.
COVID19 Pandemic has called for tough measures to be taken by different governments to prevent its spread. This translates to negatively affecting the common citizen (potential insureds) economically, drawing away their insurance purchasing avidity even further. For example, somebody who lost his job will not think of insurance but will instead pursue other means to keep winning his daily bread. Some may end up stressed and depressed as a result.
Disrupted cultural practices and norms.
Normally, cultural practices and norms such as wife inheritance discourage the growth of the industry as individuals still tend to rely on the support of their extended families. Many Africans consider death a taboo- it’s a bad omen to talk about it openly thus discouraging the purchase of products such as life insurance and funeral expense policies.
Furthermore, due to the coronavirus, it is not business as usual. Another new normal has emerged. And People’s ways of life have been disrupted. It has caused deaths, spread fear and cut off human interactions and even family ties.
To help prevent the spreading of the Coronavirus, people are being advised to stay at home and even some governments to effect the same, they have ordered a total lockdown. During this time, when one dies burial rites are not carried out according to the different societies’ cultures. And because of this, therefore, some cultural practices and the Africans’ communal existence has greatly been affected. This has solicited for sympathy among the society members and even from their governments and as a result, it has led to them helping each other even more- thus diminishing the need for insurance.
Poor products development.
Most insurers have declined to cover COVID19 and since this is a changing need, they cannot satisfy, many people are going to lose trust with them thus discouraging them from purchasing the insurance.
The key role of insurance is to give protection to an individual or a firm against monetary loss suffered or arising out of unforeseen circumstances. We live in a world characterized by risks and uncertainties and people have looked for security and protection from those loses or contingencies. And to that effect insurance has evolved as one of the most important ways that provide this security.
However, in Sub-Saharan Africa, this industry has been faced by many challenges among them: poor economic growth; unfavourable cultural practices and norms; offering poor products; inadequate selling skills and unethical practices; and even total lack of knowledge about the insurance among the individuals of the public. And now when the aforementioned pre-existing challenges are coupled with the COVID19 Pandemic effects, they adversely affect the industry’s growth and this might take many years to recover.
Until next time, #StaySafe.