The African insurance sector is optimistic about the new African Continental Free Trade Area (AfCFTA) but wants to see regulatory integration, according to a new survey.
According to the Africa Insurance Pulse 1/2021, launched by the Africa Insurance Organisation (AIO), the AfCFTA will create a single market covering more than 1.2 billion people, with a current gross domestic product of more than $2.5trn. 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.
Jean Baptiste Ntukamazina, secretary general of the AIO, said: “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.”
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, promote job creation and build capacity in the industry. These reforms are crucial to increase the security and performance of the continent’s insurers.
(Re)insurance players have much to gain from a continent-wide single market. Once fully implemented, the eight strategic objectives of the AfCFTA will benefit (re)insurance companies in Africa directly or indirectly. As a result, the expectations of the various insurance stakeholders for the AfCFTA are high.
When asked about the top three challenges for a successful implementation of the AfCFTA, respondents most frequently cited increased competitiveness, indicating that not all countries, sectors and economic actors are equally prepared to benefit from the implementation of a common market.
Another top concern of the interviewed market participants was that insurance regulation differs widely across the continent and often poses hurdles to market access. Therefore, almost all respondents, including regulators and policymakers, agreed that the current regulatory differences present a major obstacle to integrating African (re)insurance markets