Unlocked potential: Reforms support longer-term sector health

An overhaul of the regional insurance regulations in the West African CFA zone is expected to yield its best results in Côte d’Ivoire, the largest market in the sub-region. With a penetration of about 3%, according to the country’s insurance association, the Association des Sociétés d’Assurances de Côte d’Ivoire (ASA-CI), insurers are only just scraping the surface of the market’s potential.

In recent years, the regional regulator has sought to unlock that potential through a series of reforms targeting new distribution channels and products. Regulatory changes are laying the ground for the development of micro-insurance and bancassurance products, expanding the reach of insurers. A more influential change forces policyholders to pay for their premiums upfront, improving collection and speeding up claims resolution. Unpaid premiums had until now affected liquidity in the sector, which in turn had made late or unsettled claim payments the norm. The president of the ASA-CI, Roger Eugène Boa Johnson, said that the new law had solved the problem of premium collections, with the collection rate reaching an all-time high of 95% after the reform.

BIGGEST FIRMS: There are 29 active insurance companies in Côte d’Ivoire, according to the ASA-CI, and 18 specialise in non-life lines, while most of the remaining firms operate in the life segment, according to ASA-CI’s 2011 and 2012 results sheets. The market is dominated by local and African-owned firms. The Senegal-based SUNU group is a sector leader, holding a 21% market share that is split among its three life insurers – Union des Assurances de Côte d'Ivoire-Vie (UA-Vie), LMAI Vie and 3A Vie – and its non-life insurer, LMAI-IARD.

UA-Vie saw turnover of CFA21.6bn (€32.4m) in 2012, and the firm’s director-general, Almamy Timité, told OBG he credited bank insurance for the business’s high growth rate. Colina, a major firm and subsidiary of Morocco’s Saham Group, saw a turnover of CFA43.9bn (€65.9m) in the same year. Its life premiums totalled CFA15.9bn (€23.9m), increasing 9% over 2011 and its non-life premiums jumped 13%, reaching CFA28bn (€42m). Like SUNU, it controls 21% of the market share.

Nouvelle Societe InterAfricaine d’Assurance (NSIA), a firm founded locally in 1995 and with operations across West and Central Africa, accounted for 14% of total market share, with the company’s non-life and life premiums valued at CFA13.8bn (€20.7m) and CFA15.7bn (€23.6m), respectively (totalling CFA29.5bn, €44.3m). The group’s revenues rose 12% from 2011 to 2012. It is the only insurer in Côte d’Ivoire to own its own bank, although it has developed partnerships with other banks, including Société Ivoirienne de Banque (SIB), Ecobank and UBA in a bid to increase its penetration.

German-owned Allianz saw a CFA27bn (€40.5m) turnover from its life and non-life segments combined, while French life insurer AXA represented 3.9% of the market. Between the two firms, European interests account for 16.8% of the market, a healthy but greatly reduced European participation in the former French colony’s insurance sector. La Loyale, an Ivoirian company with both life and non-life segments, posted CFA12.9bn (€19.4m) in revenue in 2012, making up 6.2% of the market. The top four insurers – Colina, NSIA, Allianz and UA-Vi – captured 58.6% of turnover in 2012.

SMALLER OPERATORS: As the bigger groups vie for a market share, smaller firms with revenues below CFA5bn (€7.5m) are looking to gain critical mass in a growing but fragmented market of 21m people. This market fragmentation has put pressure on margins as companies compete to attract and retain clients, while struggling to cope – the smallest companies at least – with high operating costs. This is especially true in a market where many clients still pay cash for the premiums.

“When people pay cash, they only pay when they want,” Belife’s deputy-general manager, Sébastien Ngameni, told OBG. “You cannot deduct their premiums from a bank account.” Still, from 2011 to 2012, many of the nation’s small insurers bounced back from the crisis, posting high growth figures despite relatively low turnovers. The smallest 17 insurers make up about a 40.74% market share: Atlas’s revenue grew 76% to CFA2.3bn (€3.5m), and CEA Vie’s revenue more than doubled, up 226% to reach CFA212.9m (€319,000). Concerns over the solvency of smaller players, however, have spurred reforms by the regulator to address solvency issues and ensure that claims are paid.

REGULATOR: The Côte d’Ivoire insurance market is regulated by the InterAfrican Conference of Insurance Markets (Conférence InterAfricaine des Marches des Assurances, CIMA). The Ivoirian market is the largest among the sub-Saharan African countries under CIMA’s watch, which includes Cameroon, the Central African Republic, Congo, Côte d’Ivoire, Gabon, Equatorial Guinea, Mali, Niger, Senegal, Chad, Togo, and in principle the Federal Islamic Republic of Comores, but it has not ratified the treaty.

In 2010 Côte d’Ivoire accounted for 27.9% of the turnover in the CIMA zone, followed by Cameroon. The two countries’ insurance sectors make up 46.63% of CIMA’s turnover in 2010 (excluding Guinea Bissau’s, for which statistics were not available).

NEW REGULATIONS: In April 2010 CIMA raised the minimum capital requirement for insurance companies from CFA500m (€750,000) to CFA1bn (€1.5m). Within six months of the regulatory change, several insurers in the region saw their licences withdrawn as they could not cope with the new minimal capital requirements, but none of the insurers in Côte d’Ivoire were affected. CIMA’s reform also makes it more difficult for new insurers to open offices, as they first had to secure the required capital.

NO PREMIUM, NO COVERAGE: Over several years, loopholes in the system and poor enforcement meant that policyholders often did not pay their premiums until they suffered a loss, or that the premiums were paid to brokers who in turn delayed payment to insurers. These unpaid and intercepted premiums have not only continued to appear in insurers’ books, they’ve also been carried over from one year to the next. The result is that insurers in Côte d’Ivoire and in the rest of the CIMA zone appear in better financial shape than they truly are.

On July 22, 2011 CIMA issued a circular saying that insurers had three years to recover all arrears and to remove irrecoverable payments from their books. As of December 2014, the circular said, all arrears that appear in the books of insurers would be considered “of no value”. The directive arose from a review of Article 13 of the CIMA code, which also introduced a “no premium, no coverage” policy.

Bernard Asso Abouo, the CEO of La Loyale Assurances, told OBG, “All arrears have to be absorbed by the end of 2014, but insurers want to push back this deadline because otherwise revenue will be hit hard, even though profits will not be affected.” If CIMA authorities implement this regulatory change, the landscape of insurance firms will change drastically in Côte d’Ivoire and in other economies under CIMA’s jurisprudence come 2015. More than two dozen insurers are likely to have to recapitalise or merge with other insurers in order to meet the minimum requirement of CFA1bn (€1.5m) in 2015.

PERFORMANCE: Except for two troubled years – in 2009, on the heels of the global economic downturn, and in early 2011, following a five-month long political standoff – the insurance market has posted double-digit annual growth over the past five years. From 2007 to 2012, the market grew 40.1% from CFA148.7bn (€223m).

After the latest crisis, recovery came quickly, with the sector jumping 14.2% to reach CFA208.2bn (€312.3m) in 2012 (having dropped 5.4% in 2011, according to ASA-CI). The revenue in both the life and non-life sectors had also dropped, seeing a fall from CFA193bn (€289.5m) in 2010 down to CFA185bn (€277.5m) in 2011, although still faring much better than expected in light of the electoral crisis that paralysed the economy through the first four months of the year. The recovery in insurance has been brought about by a boost in foreign direct investment and broad headline growth, with a spate of construction projects providing one of the biggest shots in the arm (see Construction overview).

POST-CRISIS RISK: That the 2011 crisis had an impact on the sector there is no doubt. However, it is not as clear-cut as one would have expected. The effect of the political crisis on the industry is difficult to measure despite the billion-dollar losses the crisis caused. A lot of the non-life losses were not covered because they had been caused by riots and the large majority of contracts in Côte d’Ivoire do not cover damages from civil war or riots. This explains why the crisis of the end of 2010 and first term of 2011 actually lowered the loss ratio.

Insurers said that, in fact, some high-end customers did get compensated by risk-bearers keen to please in a competitive environment. However, the Ivoirian state to date has not compensated the majority of companies and individuals for the losses during the war, as originally promised by President Alassane Dramane Ouattara.

For large companies, there are now options to insure, even against riots, albeit for a high premium. However, these premiums are out of reach for small and medium-sized enterprises and most individual policyholders. Meanwhile, the economic hardship that accompanied the 2010-11 unrest has had an impact on the retail end of the insurance spectrum. The drop in individual incomes meant that many local policyholders took back their life insurance pension savings to help pay for more immediate needs. With a minimum interest rate of 3% and a typical offered rate of 3.5% annual interest, the incentive is low to allow the money to yield interest in the bank or in pension funds.

LIFE PREMIUMS: Life premiums made up 44.63% of total premiums in 2012, according to provisional ASA-CI figures. The share of the life segment has been increasing steadily, rising 4.27% over the past five years, from 40.36% in 2007. “I can see the life segment becoming a driver of the insurance sector in the same way that it drives the sector in Europe and other developed economies,” Boa Johnson told OBG. The rise of bancassurance and especially the commercialisation of credit life insurance by banks looking to protect credit portfolios has been one of factors behind the segment’s growth.

Moreover, the tax schedule to Côte d’Ivoire’s 2005 financial law made premiums paid by an employer to an insurance company as part of terminal benefits contracts deductible, thereby favouring life insurance policies. However, although the government reform came into effect in 2005, it was not originally widely publicised, thereby causing a delayed impact on life premium revenues. This has an impact on companies’ bottom lines: retirement indemnities for life contracts alone accounted for 9.1% of Allianz VIE’s turnover in 2012, according to ASA-CI.

NON-LIFE PREMIUMS: A series of regional and national regulatory changes have helped maintain income in the non-life segment in recent years, although it has been uneven. Non-life insurance is driven in Côte d’Ivoire by liability insurance on autos (RC automobile), which has been mandatory since 1995, although its implementation has become stricter in recent years, with police enforcement on this issue greatly improved.

In 2011 auto insurance dropped 6.35% to reach CFA35.55trn (€53.3bn) from CFA41.9trn (€62.8bn). An estimated 450,000 cars are insured in Côte d’Ivoire, according to ASA-CI. This has sparked interest in extending such requirements to other areas. JeanClaude Jeanson, the CEO of Ascoma Côte d’Ivoire, told OBG, “The fact that automobile and import transport insurance are mandatory have helped boost penetration rates, but other types of insurance ought to be compulsory as well, such as risk on housing. Although many housing leases require fire insurance, there is no law for this.”

In 2007 the mandatory local insurance of any good imported into Côte d’Ivoire was reinstated, 10 years after the law had been abrogated. The original law dated back to 1986. Meanwhile, as of 2013, employers no longer pay taxes on contributions made for the health insurance of their employees since the implementation of the 2012 financial law in a bid to encourage corporate health insurance coverage. Although the turnover realised by the health insurance sub-sector dropped from CFA32.45trn (€48.8bn) in 2010 to CFA30.8trn (€46.2bn) in 2011, its premiums in 2011 remained constant at 16.9% in both 2010 and 2011.

After auto and health insurance, the third-highest amount of non-life premiums came from insurance against fire and other material damages, which generated CFA21.96trn (€32.9bn), or 12.04% of all premiums, life and non-life combined.

Industry players would like to see more insurance made mandatory, such as multi-risk construction sites, said Romuald Kouassi, business controller director at Colina. “Mandatory insurance is a good way to introduce people to the principle of insurance and to encourage then to subscribe to other policies that aren’t mandatory,” said Kouassi.

LOSS RATIO: Côte d’Ivoire’s loss ratio for life insurance from 2007 to 2011 averaged 78.23% and its loss ratio for non-life insurance for the same period averaged 45.3%, providing more attractive profitability margins. With steady growth and an overall (non-life and life) loss ratio of 60.3%, the outlook is very encouraging. In 2011 the life ratio rose 5%, however, many non-life losses were not eligible for claims because they were incurred during riots, allowing the loss ratio to fall 9.73% to 38.32%. The overall life and non-life ratio dropped to 57.77%, a three-year low since 2008, when it was at 57.47%. During the five-month-long crisis, many policyholders requested pro-rata returns to use the money for more immediate needs, various insurers have said.

The factors of loss over the years have varied, often swayed by isolated high-cost incidents. Two major commercial fires in 2010 – the fire at the furniture and equipment store Orca Sud and the fire at the hardware and building materials store Bernabé – drove the fire factor up. In addition to the damages in lost goods, insurers also have to cover the cost of being out of business, compensating the stores for losses they made as a result of interrupting their operations. This explains why, compared to 2010, fires and other damages represented a smaller share of the loss in 2011, dropping 41.5%.

OPERATING COST: Even as the loss ratio remains attractive, the Ivoirian insurance market has a high management cost, due to commissions and general fees paid. Most insurers rely heavily on brokers. Insurer GNA for instance said 50.03% of its business came through brokers, thereby attracting brokerage fees. Another insurer, Belife, said that the company often has to deal with customers without bank accounts who come to pay in person for the premiums in cash, making management more difficult than if the insurer were merely withdrawing regular sums from the policyholders’ account.

Meanwhile, with the “no premium, no coverage” policy that forces policyholders to pay for insurance upfront, there is also the issue of affordability. Many policyholders have started to break up their contracts so they can pay for quarterly coverage, rather than annual coverage, for instance. “Despite the increased management costs that come with breaking up a contract, we haven’t increased our fees,” said Kouassi, who was, however, pleased with the impact of the new regulation on the insurance market.

The above are examples of how quickly management charges can accumulate. Management charges in Côte d’Ivoire are considered high relative to the rest of the CIMA zone. The management charges (commissions and general frees) depend on the category of products. For example, in 2011 auto insurance charges came to CFA23bn (€34.5m), or 64.65% of total charges; and life insurance came to CFA20bn (€30m,), or 25.04%. Total charges relative to premiums collected rose 2.58% from 34.71% to 37.29%.

CHANGING ATTITUDES: Insurance in much of Africa is seen as a luxury. Even people with disposable income often only subscribe to mandatory coverage such as auto insurance, which made up about a fifth of all insurance in 2011 (19.49%). However, this is slowly starting to change as more people receive claims in a timely manner and are able to vouch for the usefulness of insurance in their circles. “You can do all the awareness campaigns, but there’s no better way to build trust than to pay policyholders’ claims quickly,” said Serge-Innocent Pokou, the director-partner at local insurance consultancy Austins Seporini. “People will spread the word.”

In addition, ASA-CI president Boa Johnson said insurers need to be more innovative with their products to attract new customers. Many insurers agreed that most insurance companies offer more or less the same products, bearing different names.

“Insurers have been taking for granted that people need their products,” Pokou told OBG. Pokou said that when insurers have chosen to aggressively market new products that resonate with their audience, those products have done well. He cited the success of insurer La Loyale’s Yako product, a burial insurance product that takes its name from the local Akan language, expressing sympathy after an aggressive marketing drive. CIMA has tasked insurers to be more innovative, especially in creating products that appeal to rural populations and farmers.

Sharia-compliant takaful products, for instance, do not appear to have been marketed in the domestic market. Pokou said there should be a reflection about the way products are packaged financially, outside the lump sum payment system. “Our culture is a pay-as-you-go culture because people tend to only have enough for their immediate needs.”

PENETRATION: Despite the sector’s double-digit growth, the insurance penetration rate in Côte d’Ivoire is about 3%, which, when compared to South Africa’s penetration rate, is low. South Africa, the 20th-largest insurance market in the world, eclipses the rest of Africa, accounting for 75% of premiums collected on the continent, said Innocent N’dry, head of development, new technologies, innovations and services at UBIFRANCE. Boa Johnson told OBG that there have been many attempts to increase penetration through micro-insurance, but generally the operating costs have been too high, given that annuity is about CFA35,000 ($53).

Telecoms operators’ growing interest in the market is a welcome development because of the extent of their coverage. “It’s technology that will help us penetrate the market,” Boa Johnson said. “Today, however, technology has not properly been exploited to grow penetration. No website allows clients to subscribe to a policy online, for example.”

DISTRIBUTION NETWORKS: In a bid to increase penetration, CIMA has sought to diversify distribution networks by opening up the sector to partnerships with various groups. A couple of reforms have also targeted employers and professional groups, such as CIMA’s reduction of taxes on health insurance contracts (8% for individual contracts and 3% for group instead of 4.5%) on the basis of the tax schedule to the 2006 financial law. Moreover, the deductibility of premiums paid by an employer to an insurance company as part of a terminal benefits contract, adopted through the tax schedule of the 2005 financial law, has promoted the sustainable growth of life insurance premiums.

CIMA also gave its green light to partnerships between insurers and financial institutions in article 503 of 2006, which allows banks, financial institutions, savings funds and microfinance institutions to market all sorts of insurance products, provided that they comply with certain criteria. The limitation of these new networks, however, has been the low banking penetration rate in Côte d’Ivoire: only about 14% of Ivoirians have a bank account.

Most recently, insurers have been partnering with telecoms operators. The three major telecoms firms in Côte d’Ivoire – Orange, MTN and MOOV – have all over the past year developed mobile money products, opening the door to financial products marketing. Insurer Stamvie and mobile operator MOOV already signed an agreement in November 2012 to offer a micro-insurance product, named Moovprevoyance. MoovPrevoyance is a hybrid product that combines free calls between the members of a given group, as well as burial and accident insurance for the policyholder and nuclear family members to a ceiling of CFA100,000 (€150) to CFA150,000 (€225). Annual premiums come to about CFA12,000 (€18) per year. (Any yearly premium of less than CFA35,000 (€53) per year is typically considered to be a micro-insurance product.) If the premium is not used during the year, the money is returned in the form of phone credit.

Such products are expected to mushroom as they have great promise in a country with a mobile phone penetration of 85.43%, against an insurance penetration of 3% and a bank penetration of 14%. In addition to the new networks that insurers are developing, there are also the traditional networks of door-to-door sales. Door-to-door sales are important in an environment where insurers are often viewed with suspicion and where local relationships continue to drive retail growth.

BROKERAGE: However, brokerages remain a key source of contracts for insurers. Three insurance brokers and reinsurance brokers account for about 75% of the premiums, according to the ASA-CI: two French brokers, ASCOMA and Gras Savoye, as well as the indigenous firm KH Assureurs Conseils.

The remaining 25% of premiums come through direct deals and financial institutions such as commercial and microfinance banks, although the overdependence on brokers is starting to evolve with the development of other networks.

The legal framework within which they operate is also changing. Côte d’Ivoire had 102 licensed brokers as of 2010, according to consultancy firm AS Seporini, although some remain inactive. “With brokerage activity quite prolific on the Ivoirian market, around 80% of premiums in the country go through brokers, generally through large deals,” said Jeanson. “Direct links between insurance companies and policyholders are strong mainly when insurance companies have a good presence in certain areas.”

A review of CIMA code Article 13 in 2011 also changes the money relationship between brokers and insurers. With the new changes, brokers can no longer cash in policyholders’ premium payments, thus delaying payment to the insurer. Only cash payments below CFA1m (€1500) may be cashed in by brokers, and the sum must be transferred to the insurer within 30 days of the transaction. If the transfer is not made within 30 days, an additional interest will be charged to the brokers.

Instead, customers must make their payments directly to their insurers, who will in turn transfer required commissions to the brokers. Brokers are not allowed to deduct their commission themselves either. In addition to the “no premium, no coverage” rule, this move further strengthens insurers’ financial positions in order to ensure claims are paid to policyholders quickly.

REINSURANCE & INVESTMENTS: In a positive development that could slow premium exports to reinsurers in other countries, insurers in Côte d’Ivoire are set to benefit from greater local reinsurance capacity. There are a total of seven reinsurers currently in the market: Africa Reinsurance (Africa-Re), Nigeria Reinsurance and CICA Reinsurance (CICA-Re) are the big players, followed by Tunis Reinsurance, Kenya Reinsurance (Kenya-Re), Avenir Reinsurance and NCA Reinsurance.

Continental Reinsurance, a Nigerian reinsurer, is slated to open its offices in Abidjan, marking its first foray into the West African Economic and Monetary Union and making it the second reinsurer in the Ivoirian market, along with CICA-Re. Africa-Re has been active as has Kenya-Re. Reinsurers like to deal with companies with whom they have had face-to-face interactions. However, these reinsurers do a lot of retrocession, securing the deals locally and transferring some of the risk to markets in London or Asia, which are much better capitalised.

CIMA has fixed specific guidelines for the investment of premiums among member insurers that vary according to the kind of investments being made. They include specific portions towards fixed-income securities (15-50%) and bank deposits in a bank in the host country (10-40%). Other allowed investments include equity, guaranteed loans to CIMA countries, individuals or companies.

OUTLOOK: The reform of Article 13 has been described as a “revolution” for the sector. “The review of Article 13 was well thought-out. It is the revolution of our profession,” Kouassi said. The collection rate is now nearing 100% and claims are getting paid quicker. Insurance awareness is also improving. Employees are starting to expect health insurance or some sort of coverage from their employers. “We are also seeing the development of a middle class interested in insurance,” Kouassi told OBG.

Even with a modest 3% penetration, Côte d’Ivoire remains by far the largest insurance market in the CIMA zone. The structural changes that are sweeping across the sub-region insurance sector (led by CIMA’s regulatory reform) are expected to take the market to a new level. If Côte d’Ivoire’s economic revival after years of stagnation succeeds in being inclusive so that the purchasing power of Ivoirians grows, then the prospects could be even brighter.