Insurtech landscape in Africa
Product Insights Series #3
The Product Insights Series is the 3.0 chapter of our flagship market mappings and offers context around the role played by, and the growth of dozens of selected verticals across Africa’s technology ecosystem. Written articles accompany the visual #InnovationMaps to offer deeper information on each product or cluster. The third edition of the series looks at the emergence of insurtech, and the disruption of the insurance industry.
This week’s contributors are:
Oko | https://www.oko.finance/
Lami | https://www.lami.world/
CTRL | https://www.takectrl.co.za/
What do insurtech companies in Africa do?
Insurtech refers to digital and technology-driven products that cover individuals and businesses against financial loss, from life insurance to car insurance and crop insurance for farmers. African insurtech startups are actively overcoming the historically low penetration rates of insurance products across the continent. According to McKinsey & Co., only 3% of Africa is insured - by far the lowest coverage in the world. Excluding South Africa, Africa’s most insured market, this number drops to a staggering 1.12%.
Most insurtech startups in Africa are companies that focus on the access to, and distribution of insurance products, rather than actually offering insurance as an underwriter per se. They build products to help insurers, banks or other businesses ramp up existing insurance lines or create new ones that function as added revenue streams, increasing product adoption for the main service.
“We are positioned as insurance agents. We are not an insurer directly, it would take a lot of capital and time to get an insurance license”, says Simon Schwall, founder and CEO of OKO, an agri-insurer working in Mali and Uganda. “We developed a way to distribute insurance to farmers via mobile, without the internet and without requiring bank accounts, just using mobile money and partnerships with mobile operators. And we also design insurance products called index insurance products. As soon as we see that there is insufficient rain or excessive rain, in the area where our clients’ farmer is located, we automatically trigger the payments to help him recover and cover the losses.” The main reason why founders target unlocking business models by facilitating insurance rather than creating fully-fledged insurance companies is that it is a notoriously challenging sector that often requires large amounts of capital to account for risk and to secure a license. Jihan Abbas, founder and CEO of Lami, a Nairobi-based insurtech that has created an API for a range of businesses to offer digital insurance to their customers, says that acquiring an insurance license in Kenya costs around $6 million. “We were the first insurance company to be licensed as an insurer for 15 years, but we decided not to capitalise on it because it didn’t make sense for scaling,” she says.
Another company working on the design, distribution, and execution of insurance solutions to end-users, in this case, smallholder farmers, is Pula. Addressing hundreds of millions farmers’ market pool, CEO Thomas Njeru explains, where the average customer can hardly afford to pay $10, Pula leverages “a combination of remote sensing data and machine learning algorithms to draw climate maps allowing to cluster farmers into homogenous risk groups with similar yield potential. Based on such maps and historical yield data, Pula’s pricing engine will then calculate the likelihood and severity of losses which permits putting a price tag on each risk band. At the end of each season, digitally-enabled field agents measure yields of randomly selected farms in each of the groups to get a representative sample of actual harvests. If the average yields of the sample measured are lower than the historical benchmark, everyone in the risk group gets paid”, Njeru adds.
Indeed, there are plenty of large multinational and national insurers in Africa, which lessens the need for startups to pursue legacy business models. Companies range from European giants like AXA and Allianz to local players like Kenya-based Jubilee Insurance and South Africa-based Sanlam. In contrast to other tech sectors, most insurtech companies are building business models which target the same end goal: unlocking and facilitating the rollout of insurance plans, underwritten by secondary parties. Differences range from companies like South Africa’s CTRL, which acts as a digital service facilitator, targeting consumers (B2B2C), to Lami and OKO which partner with banks and telcos to help distribute insurance, targeting businesses (B2B and B2B2C). Lami and OKO, however, differ on the specific vertical they each target and the range of products they offer. Indeed, along with rolling out existing coverage, companies also work on building new products for external parties. Other common variations between models include the type of partners engaged and the target markets of interest.
Funding to insurtech
Insurtech in Africa saw its dawn with companies such as Jamii and BIMA in the early 2010s. It was not until late in the decade that dozens of companies began to appear and attract investment. Briter Intelligence counts over 75 active startups operating across different verticals, from API development to car and crop insurance. A more recent trend has also seen several scale-ups launch insurtech-related products, such as the case of South Africa’s agtech and AI company Aerobotics, which rolled out a tool to de-risk insurers, and Nigeria’s digital logistics Kobo360, which made KoboCare available to their drivers.
In terms of investment, all the founders we spoke to agreed that investment was slow at first but the landscape is changing fast. “When I first started, nobody cared about insurtech.”, says Lami’s Abbas. “But it is interesting to see how there has been a shift in how investors see insurtech. Now […] they are really excited about it because it is a massive opportunity. 98% of people in Africa don’t have access or don’t buy insurance. [The opportunity] is huge,” says Lami’s Abbas.
Seven-digit rounds or larger remain scattered, and the average insurtech company on the continent is less than five years old. Since BIMA’s sizeable investments, which were partly used to expand to emerging markets beyond Africa, only Reliance Health’s recent round was in the eight-digit band. Lami raised $1.8 million in seed money in May, led by Accion Venture Lab. OKO raised $1.2 million in seed funding from venture capital company Newfund Capital in April. CTRL raised $2.3 million from Naspers Foundry in July. The largest rounds to date are Nigeria’s Reliance Health’s $40 million Series B in February 2022 and UK-based BIMA, which raised $38.2 million in a Series C round in September 2020 to roll out its mobile-delivered health and insurance products across Asia, Africa and South America.
What are businesses and individuals in Africa using for insurance at the moment?
A key problem across Africa consists of the fact that, due to the complexity and proportional higher costs of targeting individuals, the few large, established companies address small sections of the economy like established businesses and wealthy individuals, rather than building products to suit the needs of everyday life. “In Africa today, insurers are able to sell insurance to people who have bank accounts, cars, houses and stable jobs. But beyond that, most people remain uninsured. Companies, at large, lack the technological tools to bring insurance to individuals, especially in the rural areas,” says Schwall. In fact, most large insurers make a lot of their money using premiums to invest in steady sectors like real estate and government bonds, rather than building innovative products for Africa’s informal sector, says Lami’s Abbas. The result is that most companies and individuals in Africa are not insured. There are very few companies in the market that have the technological sophistication and drive to build sustainable models that account for fraud and large payouts, meaning that premiums remain far too high for the average customer. The focus is also narrowed to a few sectors like health, car and motorbike insurance. These segments are often the most successful due to legislation that requires users to be insured, like motor insurance, or a lack of public healthcare driving obvious appreciation for cover.
Research also shows that penetration rates vary dramatically from market to market. McKinsey & Co. found that 70.6% of gross written premiums (GWPs) in 2018 in Africa were in South Africa at a total value of $48.3 billion. This was followed by North Africa (totalling a combined 8.8%), East Africa (3.3%), Francophone Africa (2.7%), Southern Africa (2.6%) and Anglophone West Africa (1.9%). The type of insurance differs, too. Life insurance dominates premiums in South Africa, but it has not been as successful across the rest of Africa. Non-life insurance - defined as cover tied to specific financial loss, often asset-related but it also includes health - is most common in other countries like Nigeria, Kenya, and Tunisia. Along with non-life and life insurance, the third sector to make up the industry as a whole is reinsurance. Yet as reinsurance is reliant upon a dynamic insurance sector it remains a fledgling industry in Africa. However, a report by the Atlas Group, an insurance and reinsurance analyst, found that national, regional and international reinsurers saw GWP growth of 9.15% between 2011 and 2020 in sub-Saharan Africa.
Sector inertia and opportunities for disruptive startups
Technology-enabled solutions can quickly add value to status quo business models that are struggling to roll out their products (in this case, insurance plans) and reach a wider audience. Lami, which facilitated more than 75,000 policies last year, is working with banks to “manage their entire insurance operations from end-to-end to digital distribution”. CEO Abbas says that a major problem was that some banks had a “churn rate” of more than 60% as they were not able to manage the renewal process for annual policies. Another problem is that onboarding policies are “slow and tedious”, hindering customer acquisition. Lami’s platform is able to solve these problems and it has built APIs for medical products, life products and credit risk, though the company is “product agnostic” and the use cases are practically limitless.
OKO, which is the largest crop insurer in Mali with 10,000 customers, works with German insurance giant Allianz to help distribute agricultural cover to hard-to-reach customers by using mobile money. The firm digitises and automates the claim management system, based on OKO’s purpose-built index product that uses data points to trigger claims. Expanding out from Mali, the company is setting up operations in Uganda where it has partnered with Kenya-based Jubilee Insurance, which was recently acquired by Allianz.
South Africa-based CTRL has taken a different approach, building a software-as-a-service (SaaS) platform that allows customers to browse different insurance products on an app or website, using algorithms to suggest the most appropriate cover. The startup focusses on connecting customers with brokers, which act as traditional intermediaries between large insurers and individuals. The biggest challenge for brokers, says cofounder Pieter Erasmus, is the cost associated with onboarding customers to insurance plans by non-digital means such as setting up branches and knocking on doors. The process is predominantly face-to-face in South Africa and it was made even more difficult during Covid-19, when Africa’s most diversified economy implemented one of the world’s strictest lockdowns. Brokers are therefore incentivised to pay a fee to use the CTRL platform to quickly and efficiently connect with potential customers, making it far easier to scale.
Startups also build new products
Aside from extending underwritten insurance, startups are also building new products either to lessen the risk or to create new insurance business models. Lami, which works with more than 25 insurance providers, also builds new products for digital platforms and services that may be in need of innovative cover but have not yet adopted solutions. Abbas gives the example of Kenya-based delivery startup, Sendy, which needed cover for the transport of goods. However, ‘goods in transit’ coverage on offer in the market required Sendy to take out an annual policy and pay upfront, even though it doesn’t own the goods it transports. The poorly designed market offering meant that Sendy would be left with liabilities of anywhere between $60 to $100,000 per trip.
“We created a[n insurance] product for the purchase of goods and transit that embedded into the Sendy platform. Now, when a truck driver accepts a trip to move a container of goods, the policy will start and the policy price is based on information such as the type of goods, the distance, how it's packaged, the tonnage - all these elements contribute to setting the price of the product in real-time. The policy number and the documents are generated automatically and the policy expires at the end of the trip. You can also file your claim directly to Sendy, so the owner of the goods manages the process for themselves. These kinds of businesses had an insurance need, but the products that existed did not have the right structure for them to be able to use the product,” says Abbas.
Schwall at OKO has been building index insurance products that use satellite data and weather tools to build automated insurance models that reduce risk and payout when weather patterns pass a certain threshold. “Large insurers don’t necessarily have the right capacity to design index insurance products. Some of them did, for example, AXA in Ivory Coast, but most of the time they ask separate companies or experts to do so,” he says. The sector has been notoriously hard to insure, with unpredictable weather patterns pushing premiums to unaffordable levels. But thanks to technology, this is now beginning to change.
“There is a risk, everyone knows […], and it is increasing due to climate change. But at the same time […] there is sufficient historical data to understand what the likelihoods are in areas that suffer from drought, for example. There are 25 to 35 years of data, so the calculations are quite safe,” says Schwall.
Access to data and the challenge of distribution
All the founders we spoke to agreed that distribution remains one of the biggest problems for the industry. Challenges to distribution are due to a variety of factors, including cultural habits. “One of the main reasons behind a gap between providers and clients is the model of distribution. It’s very traditional, fragmented; it’s mostly agents and brokers on the ground going door to door to sell insurance products. So it’s easier for companies to go after corporate business rather than individuals. So historically, because of that, insurance companies have been focusing on the bigger ticket sizes,” says Lami’s Abbas.
Take crop insurance. Selling to the individual farmer can prove challenging and customer acquisition strategies tend to focus on third parties that have better leverage. “Farmers don't wake up wanting to buy insurance”, says PULA’s Njeru, “they need it but don't want it. It’s considered bad luck to talk about drought to a farmer when they’re planting. Therefore, instead of selling insurance to farmers directly, we embed insurance onto programmes that deal with farmers and have a financial interest in de-risking the farmer, such as credit institutions, off-takers purchasing from farmers and governments investing in food security, input subsidy programs, and disaster risk management.”
As seen, aside from getting distribution right, the other key factor is the generation of, and access to critical data. Schwall says that thanks to satellite data, there are plenty of data points even in some of the world’s most undeveloped markets like Mali. But what is missing, he says, are local weather stations to confirm if the data is correct and yield data to see how a lack of rain-affected past crop yields, for example. “And so we create our own data, we go to the field and we try to collect as much data as we can to improve pricing”.
Pieter Venter, cofounder at CTRL, explains that firms like his can help boost the data points available in the industry to benefit a range of partners in the value chain. The platform collects data on individuals, and this information can be used to help empower consumers as third-party ownership of data (as opposed to it belonging solely to one insurance provider) gives individuals the power to shop around on the market to compare providers. This is a key unique selling point (USP) for CTRL, as its model allows users to take out different insurance products with different providers at the same time.
Huge opportunities for growth but South Africa-Africa transferability remain difficult
McKinsey & Co. found that Africa’s insurance industry has a potential market value of $68 billion in terms of GWP - leaving plenty of room for growth for all companies working on different or similar verticals. One interesting difference when thinking about expansion and comparing insurtech to other types of tech in Africa is that South Africa is markedly different to other insurance markets across the continent. The market is more heavily dominated by brokers and life insurance is the most widespread form of cover compared to low levels of penetration elsewhere on the continent.
CTRL’s Venter says that the lower levels of non-life insurance can be explained by the fact that car insurance is not compulsory in South Africa. Instead, citizens pay a levy on top of the petrol price which goes to a road accident fund that is owned by the government. “So you do pay for it, but you don’t pay for it as an insurance premium, you pay when you fill up your car,” he says.
The differences mean that models which are built for South Africa may not be that transferable to the rest of Africa and vice-versa. While CTRL is currently focussing on the local market, as the first digital insurance platform of its kind in South Africa, the founders say that they are looking to expand outside Africa to markets in Europe, Australia and the US. Indeed, the reliance on brokers makes the model slightly harder to replicate in Africa where brokers are present but far less prominent.
Finally, many of Africa's largest fintechs and payments companies are beginning to offer auxiliary insurance products as they look for new areas of growth. Often far better funded and with large distribution networks, this may pose a challenge for fledgling insurtech companies in the future. A strategy for success may lie in establishing a strong value proposition and building resilient partnerships with telcos and banks.
Written by Tom Collins; Edited by Lisa Hannah With, Dario Giuliani
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