Emerging Markets Growing insurance & challenges with a focus on Africa

2

Agenda

1. Background

2. Survey Results

▪ Penetration rates

▪ Distribution

▪ Product innovation

▪ Technology

▪ Regulation

3. Relevant examples

4. Conclusion

Background

4

2016 Global premium split

41%

19%

29%

1% 2%

4%4%

Non-life written premium, USD 2.1 trillion

North America Emerging Asia

Europe Africa

Oceania Latin America and Caribbean

Japan

Emerging markets roughly capture

24%of world market

23%

26%33%

2%1% 3%

12%

Life written premium, USD 2.6 trillion

North America Emerging Asia

Europe Africa

Oceania Latin America and Caribbean

Japan

Emerging markets roughly capture

38%of world market

source: Swiss Re Institute, Sigma No 3/2017

5

Outlook for emerging markets

NON-LIFE REAL PREMIUM GROWTH

LIFE & HEALTH REAL PREMIUM GROWTH

▪ Outlook for growth in Africa is optimistic, though growth is generally lower than other emerging markets but higher than in advanced markets.

▪ Growth in Asia outpaces all regions, however the rate of growth is slowing down.

6

Global insurance penetration rates

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

North America Latin Americaand Caribbean

Europe Asia Africa Oceania World

Penetr

ation r

ate

Continent

Total Penetration rate Life Penetration rate Non-life Penetration rateSource: Swiss Re Institute Sigma No 3/2017

▪ Insurance penetration rates are defined as written premiums as a percentage of GDP.

▪ Penetration rates in emerging markets are markedly lower than in the developed world.

▪ Africa has the lowest total penetration rate of 2.7%, with a non-life penetration rate of less than 1%.

▪ We will look at several reasons for the low penetration rates in our survey.

7

Africa insurance penetration rates

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Egypt Kenya Nigeria Morocco Tunisia Algeria Angola

Penetr

ation r

ate

Country

Less developed

Total Penetration rate Life Penetration rate Non-life Penetration rate

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

South Africa Namibia Mauritius

Country

More developed

Total Penetration rate Life Penetration rate Non-life Penetration rate

▪ Mauritius, Namibia and South Africa have a higher life insurance penetration rate relative to non-life.

▪ In less developed African emerging markets the non-life insurance penetration rate exceeds the life insurance rate.

8

Key challenges (1)

▪ Inappropriate distribution channels

▪ Poor infrastructure

▪ Insufficient knowledge/skills

▪ Paper based processes

▪ Products not suited to market

▪ Copy and paste

▪ Complex terms and conditions

▪ Irregular income levels

▪ Unbanked community

9

Key challenges (2)

▪ Lack of trust

▪ Driven by fraud

▪ Poorly trained brokers

▪ Limited understanding of insurance by policyholders

▪ Significant delays

▪ Other challenges

▪ Poor literacy

▪ Low income

▪ Alternatives to insurance e.g. community based schemes…

We will look at these in more detail in our survey…

Our survey

11

Survey objectives

To assess the relative

importance of key supply side

and demand side factors affecting the insurance

penetration rate.

1To determine the key challenges

facing insurers in emerging markets.

2To explore how

product innovation can

be used to improve

insurance penetration.

3To determine the level of adoption

of new technologies,

and how this will likely change.

4To approximate the current and

expected contribution to

sales of different distribution channels, including

partnerships.

5To assess the

impact of regulation on

insurance take-up, and to

explore how government can increase access to insurance.

6

12

Nature of participants

▪ Number of participants

Type of insurer % of respondents

Direct writer 71%

Reinsurer 10%

Composite 19%

Most participants were direct writers.

We received a total of 21 participants from emerging markets, mainly Africa (excluding SA)

13

Countries included in survey

▪ Total gross written premium (GWP) in Africa covered is USD 1,326.1 million

*Excludes contribution from selected multinationals with presence scattered across various additional countries incl. Morocco, Ghana, Egypt, Uganda, Ethiopia (and South Africa).

Country % of respondents *

Nigeria 35%

Mauritius 15%

Swaziland 10%

Namibia 10%

Kenya 10%

Zimbabwe 10%

India 5%

Ivory Coast 5%

Total 100%

14

Company versus industry growth expectations

▪ Growth expectations for next three years (per annum)

Country Company growth vs Industry growth

Namibia

Mauritius

Swaziland

Kenya

Nigeria

Zimbabwe

Ivory Coast

7% 7%

15% 5%

10% 5%

20% 13%

30% 12%

13% 8%

15% 8%

15

Growth opportunities: audience poll

What do you consider to be the top growth opportunity in

emerging markets?

1. Use of technology

2. Development of new products

3. Improved regulation

4. Improving customer service

5. Tapping into new markets

16

Growth opportunities: audience poll

0

5

10

15

20

25

30

35

40

Use of technology Development of new products Improved regulation Improving customer service Tapping into new markets

What do you consider to be the top growth opportunity in emerging markets?

17

Key risks: audience poll

What do you consider to be the top risk in emerging

markets?

1. Economic conditions

2. Regulatory changes

3. Competition

4. Political climate

5. Lack of new projects

6. Technological challenges

7. Consumers questioning the need for insurance

8. Wide variety in culture

18

Key risks: audience poll

0

2

4

6

8

10

12

14

16

18

20

Economic conditions Regulatory changes Competition Political climate Lack of new projects Technologicalchallenges

Consumersquestioning the need

for insurance

Wide variety inculture

What do you consider to be the top risk in emerging markets?

19

Growth opportunities

▪ Respondents key opportunities for premium growth

0

1

2

3

4

5

6

7

8

9

10

11

Development of newproducts

Use of technology Improved regulation Improving customerservice

Tapping into newmarkets

Num

ber

of re

spondents

The top two opportunities for

growth :

1. Developing new products in :

▪ Agriculture

▪ Cyber insurance

2. Better use of technology :

▪ Claims processing efficiency

▪ Apps/smartphones

▪ Online sales

20

Premium growth risks

▪ Participants’ key risks to premium growth

0

2

4

6

8

10

12

14

16

Economic conditions Regulatory changes Competition Political climate Lack of new projects Technologicalchallenges

Consumersquestioning the

need for insurance

Wide variety inculture

Num

ber

of re

spondents

Understanding penetration rates

22

Penetration rates: demand side

▪ Perceived impact on the penetration rate of key demand side factors

86% of companies believe that poor penetration is due to demand side issues

Language barriers

Community based schemes/societies/clubs e.g. Stokvel

Lack of availability of products to meet customers' needs

Inadequate distribution channels available

Low perceived value for money

Lack of understanding of insurance products

Complicated take-on and claims process

Low level of trust in insurance

High cost of insurance

no impact small impact medium impact

high impact

very high impact

23

GDP versus penetration rates

▪ According to the average respondent’s scores, the most significant demand side factor is the high cost of insurance.

▪ The graph shows that countries with a higher GDP per capita generally have a higher penetration rate.

▪ The correlation coefficient between GDP per capita and the penetration rate is moderately positive at 0.49.

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

2,000

4,000

6,000

8,000

10,000

12,000

Penetr

ation r

ate

GD

P p

er

capita (

USD

)

Country

GDP per capita and penetration rates in Africa

GDP per capita Total Penetration rate

24

Trust in the fairness & value of insurance

▪ What is the level of customers’ trust in insurance companies?

0

1

2

3

4

5

6

7

8

0 - customers have no trust 1 - customers have some trust 2 - customers trust insurancecompanies in most cases

3 - customers fully trustinsurance companies

Num

ber

of re

spondents

▪ This represents what insurers believe their customers’ view is on the level of trust.

▪ 70% of participants believe that customers have a low level of trust.

25

Trust in the fairness & value of insurance

▪ Key factors which reduce the level of customers’ trust (insurers’ view)

0

1

2

3

4

5

Lack of clear communication Perception that insurance isexpensive

Lack of education Belief that insurance is notneeded

Num

ber

of re

spondents

The key reasons for customers not trusting insurers is:

▪ Lack of clear communication by the insurer.

▪ Perceived high cost of insurance.

26

Level of customer & intermediary fraud

▪ Companies’ view on fraudulent claims and intermediary fraud

0

1

2

3

4

5

6

7

8

9

10

11

12

1 - less than 5% 2 - between 5%and 10%

3 - between 10%and 20%

4 - more than 20%

Num

ber

of re

spondents

Estimated percentage of customer fraud

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

0 - no impact 1 - some impact 2 - medium impact 3 - significantimpact

Num

ber

of re

spondents

Impact of intermediary fraud on penetration rate

27

Penetration rates: supply side

▪ Perceived impact on the penetration rate of key supply side factors

Regulation Unfavourableeconomicconditions

Low profitability Poor quality data Lack of availableinformation

Political factors Challengesdistributing

products

Language

Avera

ge s

core

fro

m r

espondents

no impact

small impact

medium impact

high impact

very high impact

28

Penetration rates: impact of regulation

▪ How regulation may impact insurance penetration rates

Companies’ view on adequacy of regulation on Treating Customers Fairly (TCF):

▪ 74% of companies believe that regulation is adequate in the area of TCF

Stronger market conduct regulation More stringent solvency rules More regulated investment markets

Avera

ge s

core

fro

m r

espondents

minimal impact

some impact

moderate impact

high impact

very high impact

29

Penetration rates

• How can government improve penetration rates

0

1

2

3

4

5

6

7

8

9

10

11

12

13

Educating the public &increasing awareness

Enforce compulsory insurance Improve infrastructure Lower fees

Num

ber

of re

spondents

According to participants, the best way for government to improve penetration rates is to :

▪ Educate the public to increase awareness, which could increase business volumes.

▪ Enforce compulsory insurance.

30

Penetration rates▪ What can companies do to improve customers’ trust in fairness & value for

money ?

0 1 2 3 4 5 6 7 8 9 10 11 12

Rewarding loyalty

Using technology e.g. to capture claims

Educating clients and intermediaries

Increase transparency & disclosure

Making the wording of documents simpler

Provide more communication to policyholders

Customer service e.g. prompt claims settlement

Number of respondents

Distribution challenges

32

Distribution: composition of sales channels

▪ How will sales channels change in the next five years?

▪ Better access to technology, specifically the increased availability of mobile phones, will reduce the reliance on brokers and will result in greater use of direct sales and partnerships.

▪ However, 48% of companies thought that behavioural and cultural factors favoured the use of intermediaries, which may somewhat limit the reduction in the use of brokers.

Brokers Direct Partnerships

Avera

ge s

core

fro

m r

espondents

no contribution

some contribution but less than 25%

between 25% and 50%

between 50% and 75%

more than 75%

33

Distribution: partnerships

▪ How will sales through partnerships change in the next five years?

Banks Retailers Telecoms Micro-financeinstitutions

Avera

ge s

core

fro

m r

espondents

no contribution

some contribution but less than 25%

between 25% and 50%

between 50% and 75%

more than 75%

▪ Participants expect that there will be an increased reliance on partnerships to generate sales.

▪ The largest increase in sales is expected to come from partnerships with telecoms, followed by Micro-finance institutions.

34

Distribution: premium collection methods

▪ How will premiums be collected in the next five years?

Cash payments Direct debits Smartphones Micro-financeinstitutions

Avera

ge s

core

fro

m r

espondents

no contribution

some contribution but less than 25%

between 25% and 50%

▪ Cash payments is the primary means of collecting premiums among our participants.

▪ Participants expect that reliance on cash payments will significantly drop, and that direct debits and payments through smartphones will be the preferred methods of premium collection.

between 50% and 75%

more than 75%

Product innovation

36

Product innovation

▪ Companies view on how insurance products are tailored to customers’ needs

0 2 4 6 8 10 12

1 - very suitable to meeting customers' needs

2 - suitable to meeting customers' needs

3 - Some deficiency in meeting customers'needs

4 - not suitable to meeting customers' needs

5 - totally unsuitable to customers' needs

Number of respondents

Innovative industry products - special mention:

▪ Kidnapping and ransom insurance –cost of having negotiator, cover fees to response person.

▪ Pay-as-you-drive.

▪ Cell funds – instead of traditional insurance client sets up a fund.

▪ Value added products e.g. cover while moving homes, misfuelling.

37

Product innovation

A report by Cytonn investments (2015) stated that "product innovation is the single biggest disruptive

opportunity in the insurance sector“.

▪ Where do companies believe that innovation is possible?

Claims handling Pricing Ease of understanding Use of appropriatelanguage

Packaging

Avera

ge s

core

fro

m

respondents

no innovation possible

81% of companies thought that Value Added Services (VAS) e.g. road side assistance, free health check-ups were crucial to their products.

some innovation possible

a fair amount innovation possible

a lot innovation possible

38

Product innovation

▪ Companies’ reliance on paperwork

▪ Large amounts of paperwork deter potential customers & result in slow claim pay outs.

▪ 76% of participants said that they significantly relied on paperwork.

▪ Reducing the amount of paper should improve penetration rates.

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

No paperwork Minimal paperwork Significant paperwork Only paperwork used

Num

ber

of re

spondents

Take on/ renewal Claims

39

Product innovation

▪ Respondents’ suggestions on methods to reduce paperwork

0

1

2

3

4

5

6

7

8

9

10

11

12

13

Implement digital policies andsystems

Development of mobile apps Make use of emails as opposed toprinting

Num

ber

of re

spondents

Other methods suggested:

▪ Introduction of electronic signatures

▪ Online registration and documentation of claims

▪ Start internally by minimising filing

▪ Change claims management and claims administration procedures

Technology

41

Technology

▪ How do participants see the use of technology changing in the next five years?

▪ 79% of respondents have been proactive in adopting new technologies

▪ 57% of respondents thought that legacy systems had a high impact in hindering adoption of new technology

Mobile phones &tablets

Sensors Big data analytics Social media Cloud computing Telematics Customer profiling

Avera

ge s

core

fro

m r

espondents

no role

some impact

medium role

important role

very important role

Case studies

43

Relevant examples

44

Links to relevant material

Deloitte material

▪ https://www2.deloitte.com/content/dam/Deloitte/za/Documents/financial-services/za_Digital-Insurance-101017.pdf

▪ https://www2.deloitte.com/insights/us/en/industry/financial-services/marketing-life-insurance-in-a-digital-age.html

▪ https://www2.deloitte.com/content/dam/Deloitte/ke/Documents/financial-services/Insurance%20Outlook%20report%20EA%20-

%20Interactive.pdf

▪ https://www2.deloitte.com/content/dam/Deloitte/ng/Documents/strategy/ng_Invest%20in%20Nigeria_Country%20Report_July18%20.pdf

Africa risk capacity

▪ http://www.africanriskcapacity.org/

Sugar Insurance Fund Board

▪ https://www.sifb.mu/

Conclusion

46

Key takeaways

TrustCompanies need to increase the level of trust – prove that it is value for money, improve communication and customer service esp. at the claims stage

Target marketOne of the biggest problems remains how to target the low-income population and provide suitable products

TechnologyTechnology will become a key driving factor for sales and distribution –companies who adopt this the fastest might reap the greatest rewards

Opportunities for premium growth

▪ Development of new products

▪ Improving customer service

▪ Use of technology▪ Improved regulation

Industry growth rateCompanies in emerging markets believe industry will grow at 6% - 10% per year over the next 3 years

Risks to premium growth

▪ Economic conditions▪ Regulatory changes ▪ Competition▪ Political climate▪ Lack of new projects

47

Key contacts

Jaco van der MerweDi rector : AISjavandermerwe@Deloi t te.co.za

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about to learn more about our global network of member firms.

Deloitte provides audit, consulting, financial advisory, risk advisory, tax and related services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries and territories bringing world-class capabilities, insights, and high-quality service to address clients’ most complex business challenges. To learn more about how Deloitte’s approximately 245 000 professionals make an impact that matters, please connect with us on Facebook, LinkedIn, or Twitter.

This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte network”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this communication.

© 2019. For information, contact Deloitte Touche Tohmatsu Limited