Expect mergers in East Africa insurance industry: Deloitte

NAIROBI: Insurers in East Africa should brace for more dynamic mergers and acquisitions as competition in the industry undermines the ability of established insurers to raise or even maintain pricing levels, a new report released by Deloitte has indicated.

According to the professional services firm, an influx of new capital flows from sources such as private equity funds and foreign insurers is expected to enhance the overall capacity of the industry, thus leading to cut-throat competition.

"This will in turn kick-start mergers and acquisitions in the short to medium term as insurers seek efficiencies from economies of scale, a phenomenon that has already started unfolding over the past two years," said Deloitte East Africa Director Thomas Njeru.

The Insurance Sector Outlook for East Africa 2015 report says capitalisation of the insurance industry continues to trend higher, spurring an expansion in insurable exposures, favourable investment performance from the capital markets, the real estate boom and relatively modest disaster losses in the past few years.

There is high insurance demand from infrastructure projects such as the Lamu Port Southern Sudan-Ethiopia Transport (LAPSSET) Corridor, modernisation of the railways network, the expansion of power generation, oil and gas exploration as well as the carpeted road network as project managers seek to evaluate, manage and transfer the project risks.

Njeru said with the rapid expansion of East Africa's economy, the insurance industry is on a solid footing as demand for both life and non-life products continue to rise as more households join the middle-income class and the market for project risk coverage soars driven by the ongoing investment in infrastructural projects across the region.

"With a low penetration rate of insurance and complicated insurance products, experimentation and innovation is called for in terms of insurers engineering products that are more consumer-friendly, improving methods of attracting and engaging clients through traditional as well as new channels and more effectively communicating the value of proposition they offer," he said.

In regard to increasing the low insurance penetration level, the report observes that awareness alone is unlikely to turn the tide. "Overcoming the general public's lack of awareness and understanding about the role and value of insurance is a key component to improving the penetration rate.

In addition to educating the public about insurance, insurers should also think more creatively about how they market, design and distribute their products, while becoming more customer-centric to excel in an increasingly technology-enabled, self-directed environment, he observed.

More insurers are also likely to explore direct-to-consumer options, targeting younger, lower-income, and other under-served segments.