sigma 2/2016: Insuring the frontier markets

Frontier markets are those emerging countries with smaller-sized economies, lower income levels and insurance sectors in the early stages of development, the latest sigma says.

Annual real gross domestic product growth in the frontier markets is forecast to be strong (typically 5% to 10%) in the near term, and total insurance penetration rates are low (typically less than 1.5%). The sigma assesses the growth opportunities in select frontier markets that meet these criteria. Most of the markets are in Sub-Saharan Africa (SSA), but the report also looks at examples from the Commonwealth of Independent States (CIS), Latin America and Asia.

The insurance sectors in frontier markets tend to follow a similar development path. In the initial years, growth favours non-life and commercial business over life and personal lines. Later, as incomes rise, premiums for life products, with their emphasis on savings, can grow more rapidly. However, there is no "one-size-fits-all" approach to doing business in the frontier markets, given their varied circumstances. For example in Latin America, the insurance sectors in Peru and Colombia are further developed than those in Bolivia and Ecuador, mainly due to structural and institutional reforms carried out in the 1990s and early 2000s. The regulatory and operating environments in these markets have improved considerably, and have encouraged foreign insurer participation.

In SSA, meanwhile, though regulatory frameworks and supervision have been improving, they are often still weak. On the other hand, SSA is leading the emerging markets in terms of mobile-phone distributed (micro) insurance. Given a large low-income population, micro-insurance and mobile-based insurance products will be key to increasing insurance penetration. Other growth areas are agricultural insurance and cover for large infrastructure projects.

In the frontier markets of Southeast Asia (Cambodia, Laos, Myanmar and Vietnam), the authorities are revising insurance and related regulations to enable faster sector growth. For instance in Myanmar, where the insurance market has been in state hands since 1963, twelve private companies were granted conditional approval to provide insurance services in 2013. Two other developments that will potentially act as growth drivers for insurance in these countries are the ASEAN Economic Community and China’s One Belt, One Road policy.

Frontier economies require a long-term commitment and the report looks at how insurers can access the markets. For example, it analyses the advantages and disadvantages of joint ventures between international and local insurers. It also highlights the opportunities in markets with an-already tech-savvy population, such as how insurers can leverage digital distribution, and the role of simple, easy-to-understand products. There is significant first-mover advantage for those insurers already established in frontier markets when the latter reach "middle-income" status and demand for insurance rises.

Find out more about these and other issues in the full sigma report.

sigma 5/2016 – Strategic reinsurance...

There is a growing trend toward more holistic and customised use of reinsurance and insurance solutions.

Read the whole story

sigma 4/2016 - Mutual insurance...

Over the past few years, premiums written by mutual insurers have outpaced the growth of the wider insurance market. The sector has undergone a modest recovery but also faces new challenges.

Read the whole story