Getting personal: Personal insurance lines offer growth potential

Economic growth, paired with proactive marketing efforts by insurers, has helped to expand the market for personal insurance lines. Although the domestic market is limited to a population of 1.5m, Gabon has a higher per capita income than most other countries in the sub-region, suggesting market depth. The development of the insurance sector has largely been driven by collective insurance schemes, but operators are beginning to widen their focus to personal lines in order to diversify revenue sources and beat competitors in this relatively untapped market. However, income disparity in Gabon will require insurers to adapt these products to the varied demands of the population.

RISING PERSONAL DEMAND: The market has traditionally been dominated by collective insurance schemes. This includes large-scale technical and industrial risk, most often related to oil exploration and mining, merchandise transport, and group life or savings insurance schemes offered by employers. Even in the automobile insurance segment, the state remains the primary purchaser of vehicles. And yet, several factors have come together in recent years to foster greater demand for personal insurance lines.

One of the key factors has been rising purchasing power. Gabon’s GDP expanded by 6.1% in 2012, the third consecutive year of growth over 6%, on the back of increased investment in local value-added industry and infrastructure building. This has both expanded the domestic labour force and increased household expenditure among the small middle class. Gross national income (GNI) per capita rose by 8.5% in 2012 to reach $14,290, which is an increase of almost 15% since 2010.

The rise in purchasing power has been accompanied by efforts to increase awareness of insurance among the population. According to local operators, an insurance culture has been slow to take hold in Gabon, and operators are working to communicate the value of these products and actively seeking out new clients.

NEW REGULATIONS: Efforts to streamline sector finances and speed up claims payment should help encourage the spread of personal insurance lines. The Gabonese market is characterised by a lack of confidence in insurance products, which is partially due to the slow pace of claims payments. This factor is even more of a deterrent for discretionary household spending on insurance, compared to collective schemes and large-scale business risks.

New regulation adopted by the regional insurance authority in 2011, the Inter-African Conference of Insurance Markets, (Conférence Interafricaine des Marchés d’Assuraces, CIMA), requires that premiums must be paid in a single instalment before the coverage is activated. In the past, insurers often broke up premiums into several instalments in an effort to attract more customers. While this helped to reach out to lower-income populations, it also increased the level of arrears; insurers often did not receive full payment, despite having assumed the risk. Many insurers worry that the lumpsum requirement will alienate some existing clients, but the initial impact remains to be seen.

And yet, this change helped insurers to bring arrears from the equivalent of 40% of booked revenue in 2011 to just 10% in 2012. CIMA has given insurers a three-year period to remove the remaining arrears from their books. A return to financial health should help to speed up claims payment in the future, and eventually to improve public opinion. CIMA authorities also imposed a three-month deadline for claims payment, and insurers are working to align with this standard in 2013.

MARKETING STRATEGIES: To reach out to potential clients, insurers have made a concerted effort in recent years to increase direct marketing campaigns and spread their geographic footprint. The majority of insurance offices are located in the capital, but several insurers are working to open new offices in Owendo and PortGentil, with plans to branch into other major cities.

Rather than relying purely on the extensive brokerage network, insurers have stepped up direct marketing campaigns in recent years. A number of companies communicate regularly in Libreville through television, radio and billboards. Ogar, the leader in the life insurance market, contends that these efforts are one of the reasons behind the uptick in life insurance and other personal lines in the last two years. The spread of life insurance products will likely be driven by private employers and bank lending in the future. However, other personal lines such as birth, accidental death, marriage, funeral and complementary health insurance will require a more direct marketing presence.

EXPANDING LIFE SEGMENT: Life insurance, particularly among individual clients, has been slow to take off in Gabon. CIMA’s secretary general, Jean Claude Ngbwa, told OBG, “While recent growth has been encouraging, life insurance remains a difficult line to develop in central Africa. It does not exist yet in Equatorial Guinea although this country has the highest income per capita in the region.” While a number of challenges remain, the life insurance segment has leapt ahead in recent years based on economic growth and growing awareness. Renaud Allogho Akoue, secretary general of OGAR, told OBG, “In the near future, market growth is likely to come from personal lines, and particularly from life insurance, given its low level of penetration today. Life insurance now represents around 15% of premiums, which leaves room for expansion.”

Domestic government regulations also aim to encourage the up-take of life insurance. For example, no taxes are applied to insurance contracts at the time of enrolment or cancellation, except a management fee of roughly 1%, according to local media, which goes to support domestic and sub-regional regulatory entities. Clients are able to deduct up to 10% of life insurance contracts on annual tax declarations.

BANCASSURANCE: The spread of bancassurance will also help to expand life insurance and other personal lines in the near-term. Bancassurance is well-developed in Gabon and is one of the reasons behind the recent growth in life premiums. Most companies offer insurance products via bank partners, and their client base is growing as banking activities do; life insurance is required for most bank loans. And yet, the low level of banking penetration, estimated to range from 6% to 15% in 2012, is a restraint for the individual market.

The newest entrant on the life insurance market, Assinco Vie, is slated to launch before the end of 2013. BGFIB ank acquired a 60% stake in Assinco in October 2011 as part of the bank’s business expansion plan and in step with the expanding trend of bancassurance on the Gabonese market. The two firms are partnering to launch Assinco Vie in order to maximise the potential of the growing life segment; Assinco saw turnover increase 24% in 2012, largely due to an uptick in life premiums. While the domestic market remains small given the population of 1.5m, partnership with banks could provide insurance companies with ready-made networks for expansion into the sub-region.

MICROINSURANCE: Conditions are now set to allow for the spread of other personal insurance lines, including home, civil liability, and property coverage. Yet income disparity in Gabon limits the existing pool of potential buyers. This may slow the growth of life insurance and other personal lines in the coming years, particularly since premiums must be paid all at once.

Sector authorities are in the process of finalising the regulatory context for the introduction of microinsurance products, which will help to expand these protections to a broader population. Microinsurance schemes have proven successful in other countries in the CIMA region, such as Senegal, and Gabon’s income disparity and low banking penetration make it a high-potential market for the development of these products. The microinsurance industry consists of adapting traditional insurance plans to the needs and capacities of low-income populations; typical products include life, credit, agricultural, marriage and funeral insurance.

Following the adoption of the general guidelines for microinsurance programmes in April 2012, CIMA finalised price caps for microinsurance premiums, set at a maximum of CFA3500 (€5.25) per month or CFA42,000 (€63) per year. Existing insurance companies will be permitted to apply for a microinsurance license extension. However, few companies have shown interest so far, given the specific human resources, branch network, and overhead required by this niche field. Other organisations, such as microfinance groups and non-governmental organisations, will also be able to apply for a license, and will be subject to a minimum capital of CFA500m (€750,000). This is below the CFA1bn (€1.5m) capital requirement for conventional insurers. Once the mechanisms for their introduction are complete, which is likely to be done with the help of a technical partner, local CIMA authorities expect to launch microinsurance by 2014.

The pending launch of microinsurance products shows the adaptability of the Gabonese insurance market. While limited in size, insurers are proactively reaching out to new clients and diversifying from collective schemes. Unlike high-risk collective and corporate plans, much of the personal insurance market will be able to be reinsured by Gabonese firms, helping to preserve a larger percentage of premiums on the local market.