Strengthening confidence: New regulations are creating opportunities in life, health and microinsurance coverage

As with many of Africa’s emerging markets, a number of challenges face Gabon’s insurance sector, including low insurance awareness, a small domestic client base and declining oil production. And yet, the Gabonese market remains one of the largest in the sub-region, and it is set to expand in the coming years as the demand for personal insurance lines increases. The insurance industry was recently transformed by new regulations introduced in 2011, which changed premium payment deadlines and shifted the dynamic between insurers and brokers, resulting in a year of transition in 2012 as insurers adjusted to the new regulation and took a more direct approach to sales.

SECTOR STRUCTURE: Gabon’s insurance sector is modestly sized but nevertheless highly competitive, as eight companies vie for market share in a population of 1.5m. Currently, five companies specialise in non-life insurance: Ogar, Nouvelle Société Interafricaine d’ Assurances du Gabon (NSIA Gabon), Colina Assurances Gabon, Axa Gabon and Assinco; three firms specialise in life insurance: Ogar Vie, UAG-Vie and NSIA Vie. A ninth insurer, Assinco Vie, is expected to enter the life insurance segment in the coming months.

International groups have been key to the sector’s development. Ogar, the leader in terms of market share, and Assinco are the only domestic insurers that are not subsidiaries of foreign companies. Axa, the oldest insurer on the market, is part of the French insurance major, Axa Group. UAG-Vie is part of the Senegal-based SUNU Group, which is present in 11 countries in the Inter-African Conference of Insurance Markets (Conférence Interafricaine des Marchés d'Assurances, CIMA) region. NSIA and Colina are both part of multinational groups of the same name that are rapidly spreading their footprint throughout Africa. Colina’s network of 15 companies was acquired by Morocco’s Saham Finances in 2010, as part of the group’s regional expansion strategy. For several actors, the injection of foreign capital has been critical to developing product offerings and supporting expansion in an already crowded market.

Gabon also has a well-developed network of brokers. In 2011 brokers accounted for an estimated 70% of insurance sales nationwide. Today, there are 19 active firms, and the top three account for more than two-thirds of brokered sales. Gabon’s insurance sector employed 457 people in 2011, up from 408 in 2009.

GROWTH DRIVERS: Although personal lines are beginning to expand, the insurance market has developed on the back of Gabon’s large-scale industrial operations, particularly oil production and mining. Rising industrial and construction activity, coupled with the expansion of the market through newer lines, such as life and health coverage, have supported solid growth in recent years. Total premiums increased 7.5% year-on-year ( yo-y) to reach CFA90.2bn (€135.3m) in 2011, the most recent year for which figures are available. Annual sector growth dipped from 11.2% in 2010 and 9.8% in 2009, as non-life insurance sales fell from a particularly high level registered in 2010-11; however, premium levels have nearly doubled from CFA49.9bn (€74.85m) in 2005. Indeed, Gabon has confirmed its place as the fourth largest market in the CIMA, which covers 14 countries in Francophone West and Central Africa. The largest markets are Côte d’Ivoire, with CFA182.2bn (€273.3m) in premiums in 2011, Cameroon with CFA141.1bn (€211.65m), and Senegal with CFA93.6bn (€140.4m).

The insurance penetration rate, or total premiums as a percentage of GDP, fell from 1.4% of GDP in 2009 to 1.1% in 2011 as economic growth accelerated rapidly in recent years. Nonetheless, Gabon’s penetration rate has been consistently higher than the CIMA average, which ranged from 0.9% to 1% between 2009 and 2011. A more relevant indicator of demand is insurance density, or premiums per capita, which are particularly high in Gabon, thanks to high-value natural resource operations. Per capita premiums rose 5.5% in 2011 to reach CFA58,792 (€88.19), which is over 10 times the CIMA regional average of CFA5228 (€7.84) per capita in 2011.

The sector is dominated by non-life insurance, primarily automobile, transport, fire and technical risks. Non-life premiums grew by 5.8% in 2011 to reach CFA75.5bn (€113.25m), which represents 83.7% of total premiums. And yet, the non-life segment has declined slightly from annual growth of 13% and a total market share of 85% in 2010, as the sector begins to diversify. Life premiums increased by 17.2% in 2011 to reach CFA14.7bn (€22.05m), representing 16.3% of the total market. This uptick continues a strong, if irregular, growth trend from recent years, as life premiums grew by 16.8% in 2009 and just 1.6% in 2010.

KEY PLAYERS: Ogar is the country’s largest insurer in terms of premiums, according to the Gabonese Federation of Insurance Companies (Fédération Gabonaise des Sociétés d’Assurances, FEGASA). Combined turnover from its life and non-life branches reached CFA35bn (€52.5m) in 2011, an increase of 10.68% y-o-y. This gave Ogar a 38% overall market share, including 52% of life premiums and 36% of non-life premiums. While it remains solidly in the lead, the company’s market share has declined from 41% in 2009. In 2011 Ogar’s life insurance revenue outstripped non-life insurance, growing by 15% y-o-y to reach CFA7.9bn (€11.85m). Non-life premiums grew at a slower rate of 9.5% to reach CFA27bn (€40.5m) but continue to represent the majority of the insurer’s revenue. Ogar remains the market leader in transport, fire, health and life insurance, but smaller companies have grown more quickly in the last two years as they carve out a greater market share.

NSIA Gabon is the second-largest company with a combined 19.82% market share in 2011, according to FEGASA. Like Ogar, NSIA has dedicated non-life and life insurance companies, whose combined turnover increased 3.44% y-o-y to reach CFA17.84bn (€26.76m). More than 85% of the company’s turnover comes from the non-life segment; however, NSIA Vie was launched in July 2006 and has shown dynamic growth in recent years, including a 55% increase in life premiums in 2011.

Colina is the third-largest company terms of market share, despite being the most recent entrant, having launched operations in November 2006. The firm focuses on the property and casualty segment and had carved out a 15.75% share of the non-life market by the end of 2011. This helped increase Colina’s overall premiums by 17.64% y-o-y for an annual turnover of CFA11.76bn (€17.64m) in 2011.

Both Axa and Assinco (Assurances Industrielles et Commerciales) registered turnover of roughly CFA10bn (€15m) in 2011. While Axa increased overall premiums by 7% y-o-y, Assinco’s turnover declined by just under 7%. UAG-Vie held the smallest volume of premiums in 2011, with CFA5.22bn (€7.83m). However, premiums grew by a considerable 27.3% y-o-y, on the back of growing interest in life insurance plans sector-wide, giving the company a total 5.81% share of the market.

SECTOR OBSTACLES: Gabon’s insurance sector presents opportunities for steady growth in the coming years, given the rate of economic expansion and the low penetration of life insurance and other personal lines. The arrival of a ninth actor attests to the market’s growth potential, despite an already high level of competition. To realise these opportunities, operators are working to overcome a handful of obstacles. Primarily, operators continue to confront a lack of awareness of insurance; a vibrant insurance culture has yet to take hold in Gabon, particularly among individuals. This is due in part to Gabon’s income disparity, which makes premiums too high for a large segment of the population. The situation is compounded by a widespread lack of confidence in insurance products. The Gabonese market has been characterised by slow claims payment in the past, a deterrent for many potential clients. CIMA regulators are working to ensure that insurers pay claims within a required three-month period; payment delays have begun to speed up in the last year, but it will take time to increase market confidence.

Several factors have also weighed on sector profits in 2011. An uptick in annual claims, in part a result of a series of fires that year, had a temporary but noticeable impact on insurers’ net revenue. The segment’s claims rose roughly 19%, from CFA27.9bn (€41.85m) in 2010 to CFA33.3bn (€49.95m) in 2011, for per capita claims of CFA21,707 (€32.56). While official figures have yet to be published, the volume of claims was expected to have dropped to normal levels in 2012.

In general, the increasing competition between the eight, and soon to be nine, companies has tightened profit margins. Price wars have pushed operators to lower premiums and extend their client bases rapidly, often offering premiums on credit, which is one of the main reasons behind the high level of arrears seen on the market in recent years. By the end of 2011, insurers’ arrears were equivalent to approximately 40% of total booked revenue, which placed considerable financial strain on insurance companies and slowed claims payment. CIMA authorities adopted new regulatory measures in 2011 that have begun to return sector finances back to a healthier level.

REGULATION CHANGES: The CIMA Insurance Code, which was introduced in 1995, is applied to all 14 countries in the zone. CIMA sets the regulatory tone for the entire region, and its Regional Commission for Insurance Supervision (Commission Régionale de Contrôle des Assurances, CRCA) manages in-country monitoring of insurance companies, identifies market needs, and sets the guidelines of national insurance policies. In Gabon, the government office responsible for the domestic insurance industry is the National Insurance Directorate (Direction Nationale des Assurances, DNA).

In 2011 Article 13 of the CIMA Insurance Code was amended to require that premiums be paid up-front and in one instalment. Clients must now pay in full before they are considered covered, but the article provides a 60-day grace period for premiums that are higher than CFA76.8m (€115.2m), equivalent to 80 times the annual minimum wage of CFA960,000 (€1440) at the time the measure was passed. This applies to all branches except automobile, health and transport, and puts an end to the common practice of “fractioning” premiums, or splitting them into smaller instalments, which was one of the factors behind rising arrears. With the new regulation in place, insurers were able to reduce annual arrears from 40% to approximately 10% of booked revenue in 2012. According to CIMA’s secretary general, Jean Claude Ngbwa, insurers are now working to get remaining arrears off their books, which should happen within the next three years.

The high level of arrears has also contributed to slow claims payment, a key factor underlying the lack of confidence in insurance products and a barrier to expanding companies’ client base. According to CIMA estimates, claims payments for certain sectors, particularly high-risk areas such as car insurance, can stretch well beyond the new three-month deadline. This is partially due to the financial strain on insurers, as well as difficulties obtaining the necessary police reports and other official documentation required before payment can be disbursed. “The new CIMA regulations have helped to strengthen consumer confidence in the Gabonese market,” Renaud Allogho Akoue, the secretary-general of Ogar, told OBG. “However, progress is still needed in speeding up claims payment. This should help to expand the insurance client base, and will be a priority for the market in 2013.”

BROKERAGE MARKET: Secondly, the new regulation reverses the flow of payment between insurers and brokers. Under the previous system, brokers were able to cash in customers’ premiums and then transfer the funds to insurers after extracting a commission. Brokers, rather than insurers, had developed the human resources, management skills and equipment necessary to process the majority of premiums. Under the new scheme, however, brokers can collect payment but must transmit it directly to insurers, thereby reinforcing their role as intermediaries.

The move should help to improve insurers’ overall financial health by ensuring that they receive payment at the time when the risk is assumed. However, many insurers faced difficulties in processing direct premium payments, since roughly 70% of premiums had been initially collected and processed by brokers the year before. Insurance companies are required to transfer commissions within 30 days, but this process was bogged down in 2012 as the system was being put in place, resulting in a difficult year for brokers. “Brokers will go through a transition period in the near future as companies adapt to the new operating context. Consolidation is possible, given the large number of operators on the market,” Christophe Roudaut, general director of the brokerage firm Gras Savoye, told OBG.

AUTOMOBILE & TRANSPORT: As the two types of mandatory insurance that are most actively enforced, automobile and merchandise transport continue to dominate the market. In 2011 automobile insurance premiums increased by 7.45% y-o-y to reach CFA22.5bn (€33.75m). This represented one-quarter of total turnover and 30.75% of non-life premiums. Although car insurance is obligatory, an estimated 40% of drivers are still uncovered. Many insurers are concerned that the new requirement that premiums be paid in a single instalment may put this insurance out of the reach of some existing clients, and therefore increase the percentage of uninsured drivers in the future.

Transport insurance amounted to CFA18.83bn (€28.25m) in 2011, making it the second-largest segment by turnover, growing 8.54% y-o-y. Transport contributed 20.9% of total premiums and one-quarter of non-life premiums. In Gabon, transport insurance is obligatory for imports, although not for exports. The country imports the majority of its food, construction materials, cars, and other consumer goods, and sustained high levels of imports should continue to make this a lucrative segment in the future.

HEALTH INSURANCE: Private health insurance contributed 14.64% of total premiums in 2011, rising by 3.75% y-o-y to reach CFA13.2bn (€19.8m). However, this sector will undergo a transformation when the newly created universal public health care scheme begins operation in early 2014. Private insurers are likely to lose much of this revenue stream, as the public sector will now cover 80% of the cost of most treatments and generic medications. However, the public agency managing the health care system, the Caisse Nationale d’ Assurance Maladie et de Garantie Sociale (CNAMGS), announced that it will work with private insurers to ensure a smooth transition and facilitate the creation of complementary health insurance lines. In the short-term, insurers may be able to compensate for these losses by developing additional products for the middle class and personal insurance market. In the medium term, there is considerable potential for complementary health insurance plans, similar to France’s mutuelles (mutual) system, which could cover the remaining 20% of health care costs, as well as medications or specialist services not included under the universal system.

ADDITIONAL LINES: Fire insurance was the only segment to dip in 2011, as premiums fell 10% y-o-y to reach CFA10.3bn (€15.45m). Construction insurance, on the other hand, has increased in recent years, as it is required under all public works contracts. The numerous state-sponsored infrastructure projects planned for the next decade will continue to support growth in this area. Authorities are still working to encourage the spread of “décénalle” insurance, or 10-year builders’ insurance that protects against future problems with the structures. Finally, home insurance has become a lucrative sector for collective plans, but it remains to be developed in the personal insurance market.

BOOSTING LIFE COVERAGE: The up-take of life insurance began slowly in Gabon, which is restrained by low insurance awareness, limited purchasing power, and the lack of market confidence. However, it has taken off in the last five years and is set to become an important growth driver in the future. Economic growth, increasing salaries, and sustained marketing efforts have all contributed to its rise. Life insurance premiums jumped by 16.8% in 2009 and by 17.2% in 2011, but were broken up by near-stagnant growth of 1.6% in 2010. The sharp increases drove much of overall expansion in 2009 and 2011: life insurance products grew from 15% of total premiums in 2010 to 16.3% in 2011.

Ogar Vie remains the market leader, but its share of life premiums dropped from 55% to 52% in 2011. Next, UAG Vie came in second with a 34% market share, and NSIA Vie showed the most rapid rise in life premiums as its market share increased to 14% in 2011. Assinco Vie is expected to be established by the end of 2013, further increasing competition. Assinco already markets both life and non-life products via its partner and majority shareholder BGFIB ank.

Gabon’s insurance sector has traditionally been dominated by collective insurance contracts, but recent growth in life insurance has highlighted the rising importance of personal insurance lines (see analysis). Several factors have encouraged this trend, including increased marketing efforts by insurers and partnerships with local banks. Bancassurance has become a well-established channel for life insurance sales in Gabon, and several insurers now offer a variety of products on this platform. Estimates of the percentage of the population with a bank account ranged between 6% and 15% in 2012, a low penetration rate considering Gabon’s status as an upper-middle income country. And yet, distribution through the banking network allows insurers access to the client base with the highest potential for insurance products.

Sector executives expect that the life insurance segment may see annual growth upwards of 10% in the next few years, while the non-life segment growth rates have held relatively steady, remaining at between 5% and 6%. Economic growth, as well as increasing interest from the middle class for personal insurance lines, are expected to support its expansion in the mediumterm. A number of insurers are working to increase their presence by establishing new branch offices in Owendo, Port-Gentil and even cities further afield of these major population hubs. This strategy of proximity will help to increase access to a broader population, however Gabon’s persistent income disparity will continue to limit the size of the potential client base for individual life insurance schemes.

MICROINSURANCE PLANS: The regional regulator is working to introduce microinsurance products in Gabon over the next two years, which should help to bring a considerable portion of the population into the insurance market. In 2012 CIMA passed a set of regional microinsurance regulations that will serve as the basis for introducing microinsurance products in Gabon. In April 2013 further regulations were introduced that cap microinsurance premiums at CFA3500 (€5.25) per month or CFA42,000 (€63) per year. This is relatively expensive, considering that this rate is roughly 25% less than average monthly premiums for conventional insurance, which stood at CFA4632 (€6.95) in 2012. However, the current CIMA regulation allows each country to determine its own premiums below the general price cap, according to the particularities of each market. Once Gabonese authorities outline microinsurance prices, they will be monitored periodically in order to ensure their adaptation to the local market.

According to Ngbwa, the next step is for Gabon to seek out a technical partner to help create the mechanisms necessary to introduce and regulate the microinsurance segment at the national level. For example, agricultural insurance holds strong potential for the market, but stronger statistics on the estimated client base, distribution and even precise rainfall and weather data will be needed before microinsurance can be commercialised. The World Bank has committed to help CIMA find and work with technical partners to complete this step, which will be a priority throughout the year 2013.

REINSURANCE: In an effort to keep more premiums within the country, the government established a national reinsurer in December 2011, the Société Commerciale Gabonaise de Réassurance (SCG-RE). Previously, companies relied exclusively on foreign reinsurers like Swiss Re, Munich Re, CICA Re and Africa Re. In 2009 37.3% of total premiums were transferred outside the country, which is roughly on par with 37.1% in 2008, but down from 40.9% in 2004. The state holds a 67.5% stake in SCG-RE, and local insurers hold the remainder.

Beginning in 2012 companies were required to cede 15% of non-life contracts and 10% of life contracts, which should help to quickly establish SCG-RE on the market. Yet, these requirements increased reinsurance charges in 2012, which impacted insurers’ annual performance. SCG-RE immediately assumed reinsurance for all lines except for the high-risk segments of aviation, offshore oil exploitation and health insurance. These sectors are to be phased in beginning 2013-14.

The creation of SCG-RE may eventually reduce the impact of fronting, which is a widespread practice in high-risk insurance lines. Under fronting agreements, local insurance companies issue policies for operations in Gabon, as required by CIMA regulations. The insurer then either transfers the entirety of the risk back to the insured organisation or directly to a reinsurer, which is often a captive insurance company established by the organisation for that purpose. Insurers then take a percentage of the premium as a fee. Thus, the insurers keep the initial premiums on the local market and avoid taking on excessive risk.

While this contributes to the large amount of reinsurance premiums that are sent out of the country, it is an integral part of Gabon’s small market. CIMA raised capital requirements for insurance companies from CFA500m (€750,000) to CFA1bn (€1.5m) in 2010 to ensure adequate capitalisation to meet claims. Still, many local offices remain small compared to regional or global heavyweights. Ngbwa explains, “Given its small size, the capacity for major industrial underwriting is insufficient strictly on the local market. However, the practice of fronting is well-established in Gabon and regulated by CIMA authorities, providing a critical outlet for local companies.”

OUTLOOK: The insurance sector has traditionally been driven by the extractive industries, but over-reliance on the hydrocarbons industry may pose a medium-term risk for the sector, as Gabon’s oil production has been declining in recent years. However, government efforts to expand industrial activity across a number of different sectors, including timber processing and mining, stand to increase demand for related lines of insurance in the medium-term. Conditions are also falling into place to support the expansion of personal insurance lines.