African Insurance Pulse on the African Continental Free Trade Area (AfCFTA), launched on Tuesday by the Africa Insurance Organisation (AIO) posits that the AfCFTA will create a single market covering more than 1.2 billion people, with a current gross domestic product of more than US$ 2.5 trillion.
The free flow of goods, services, people and capital under the AfCFTA is expected to boost intra-African trade and strengthen the competitiveness of African companies.
The African insurance sector is
optimistic about the AfCFTA but wishes to see regulatory integration.
As in the past, this year’s 6th annual edition of the African Insurance Pulse, conducted by Faber Consulting on behalf of the AIO, is based on careful market research and in-depth interviews with nearly 30 insurers, reinsurers, intermediaries, regulators and policymakers operating in Africa.
Jean Baptiste Ntukamazina, Secretary General of AIO, said: “The AfCFTA has significant potential to serve as a catalyst for transforming the African economy. For the AfCFTA to succeed, dynamic pan-African trade is required, which can only take root in a stable socio-political environment. The African
insurance sector is ideally positioned to provide security, economic and financial stability and enable
the development of societies and economies in Africa through its risk knowledge and risk transfer
solutions. However, to play this important role, African insurers need integration or even
harmonisation of insurance regulations.”
In Africa, the service sector (including the insurance sector) made the largest contribution to GDP, with 53 % in 2020. The relevance of the services sector is even more significant, as the widespread informal sector is not included in most statistics. The African Union expects an increase in exported
services and further growth in industries that are heavily dependent on services, such as manufacturing
and agriculture. Liberalisation of the service sector is likely to be driven by the private sector, especially financial institutions, which will play an essential role in shaping policy.
Insurance growth in Africa has been driven by economic growth
The maturity of the insurance market is low in most African countries. Insurance penetration is expected to increase in African markets where insurance growth has been accompanied by structural reforms, such as market liberalisation, compulsory insurance enforcement, wider distribution, public-private partnerships, and a regulatory system promoting innovation and market access. The trend towards tighter capital requirements for insurance companies to ensure their solvency will establish
stronger companies and promote job creation and build capacity in the industry. These reforms are
crucial to increase the security and performance of the continent’s insurers.
While intra-African trade agreements have gradually seen a substantial reduction in tariffs on goods, non-tariff barriers, such as infrastructure gaps, the low quality of trade logistics, access to credit, and human capital, remain high for most African countries.
Despite these efforts, the intra-African trade remains below its potential. This is also true for the insurance sector, according to the executives interviewed. Most insurers operate in just one or two markets. Even Africa’s reinsurers, acting as a shock absorber for cedants and economies, are challenged to diversify their portfolio because of many barriers and constraints in African insurance markets. Ahead of the implementation of the AfCFTA, a
