Insurtech, on the heels of a fintech boom, heats up in Africa

Insurance in Kenya and Africa at large remains a marginal product, with levels of penetration across the continent half the world average as a percentage of GDP, and premiums per capita 11-fold lower than the world average, according to a recent report by McKinsey and Co. (and that’s including the outsized market of South Africa; take that out and Africa is even further behind). But economic growth and the rapid expansion of digital and mobile services are set to change all that: the smallest market then looks like the biggest growth opportunity.

That spells an opening for new players. Safaricom, the Kenyan telco that runs the groundbreaking and market-dominant M-Pesa mobile payment platform, has been working on a new insurance product against property damage, theft, and loss of life provisionally called Bima. Yet to be launched, when (and if) it does roll out, it will enter the market alongside a small but growing number of companies entering the field taking more innovative approaches with products that address the needs as well as the limitations of consumers in the region.

The wider picture for insurance startups has so far been a patchy one in Kenya, with penetration in the country currently at less than 3%. But that also leaves room for innovation.

Add to that the track record being set in the adjacent field of financial services and you get an interesting precedent for how insurance tech might develop. Fintech has shaped up to be a hot area for investment and growth, with Flutterwave, Wave, Kuda and Thunes all raising massive rounds in the last year at valuations rivaling those of their counterparts in more developed regions, on the heels of great expectations for growth.

In its recent report, McKinsey said a rise in demand for digital solutions, as smartphone and affordable internets penetration deepens across the continent, has provided opportunities for the insurtechs to step in and offer innovative products.

“Competition among players has already led to significant innovation and disruption in the African insurance market, with insurers leveraging technology to target specific segments or services and cut costs,” it said.

Innovative products launching across the continent appear to be more customer-centric, allowing micro-payments, flexible sign-ups and access to a wide range of services through mobile phones. Among those that are making it easier for clients to access and afford insurance services is Kenya’s Griffin Insurance, which allows clients to access all services through its mobile app, pay for car coverage in installments and pause coverage when they travel overseas. The insurance firm is a sister-company to Lami technologies, which raised $1.8 million in May this year to scale API insurance platform across Africa.

Startups like Bima, also named like Safaricom’s product, offer other services like telemedicine that complement their core insurance businesses. The mobile-first platform which provides life and health insurance policies, along with telemedicine to support the latter, raised $30 million last year to build micro-insurance and healthcare services targeting the emerging markets. The startup was founded in Europe but is active primarily across seven countries in Asia and in Ghana, Tanzania and Senegal in Africa. It targets people earning less that $10 a day, and targets to have at least 75% of its clients as first-time policyholders.

South Africa-based Pineapple is another growing insurtech that offers mobile-based services reducing paperwork and the need for office visits to sign up or process claims, aligning itself with the fast-changing customer behavior. The firm, which recently extended its range of services to include car insurance, now provides its customers full-fledged insurance coverage — all underwritten by Old Mutual.

Insurtech opportunities in sectors such as agriculture are also developing, with startups such as Oko, which operates in Mali and Uganda, providing automated insurance products based on satellite data and mobile payments. The startup, which raised $1.2 million earlier this year, derisks farmers affected by extreme weather events like drought and floods.

Even Safaricom has already started some early moves into the space, in the form of a home insurance product covering items like electronics and furniture that it offers in partnership with Jubilee Insurance, a Kenyan underwriter. The service — which users can register and pay for via USSD (the mobile technology that is used for a variety of data services in Africa, which bypasses needing costly mobile data plans by relying on more basic 2G network) — offers insurance covers that cost up to $13 a month with a maximum payout of $10,000. (It seems that Safaricom’s yet-to-launch insurance service might take a different and more direct approach to how the product is offered to the market, which may be why it requires more regulatory and other approvals for the telco.)

Yet it is not all smooth sailing for insurance providers, and for those that might want to move deeper into that space.

Safaricom — leveraging its 39.9 million mobile subscribers in Kenya as of March of this year and a hugely sticky service already in full swing in the form of a payments service — would jump into that pool with a splash, although it’s not clear if it will be swimming at all at this point: the company’s insurance service entered a regulatory approval process back in December 2020 and a spokesperson declined to give a timeline for a commercial launch.

Safaricom launching a new insurance effort underscores how the telco continues to look for ways to diversify away from its traditional voice, data and messaging services.

It outlined the roll-out of new services in the latest Sustainable Business Report published a fortnight ago. The company also recently launched a video on-demand service dubbed Baze that enables online content creators to monetize their content, and subscribers to access content for a daily charge of up to $0.18. The service rivals streaming services such as Netflix, Showmax (a South African service) and Amazon Prime Video, that remain out of reach to most smart-phone owners due to cost.

The telecom said in the report that it is also exploring new growth opportunities in agriculture, education, healthcare, next generation financial services, regional expansion as well as in micro and small medium enterprises (MSMEs).

“Going forward we will endeavor to play a key role in driving healthcare and education inclusion as well as enabling smallholder farmers to become wealthier and commercially sustainable,” said Safaricom CEO Peter Ndegwa in a statement.

Already Safaricom runs DigiFarm, a service where farmers access farm inputs at discounted prices. DigiFarm also links farmers to the market, and provides loans for farming activities and learning materials. Safaricom says that the platform has 14,000 active members.

In line with the telecom’s plans to grow its revenue streams and expand regionally, a Safaricom-led consortium was in May this year formally granted one of the licenses to operate in Ethiopia by the Ethiopian Communications Authority. The consortium comprised of Vodafone Group and its member Vodacom, Japan’s conglomerate Sumitomo Corporation, and CDC Group will commercially launch its services in Ethiopia next year. It said that Ethiopia will open a new market of 4 million SMEs and a population projected to to hit 130 million by 2030.

Safaricom is well known as the company behind M-Pesa, the mobile-money service that enables its customers to send and receive money, as well as to pay utility bills using just their phone numbers, turning it into a kind of proxy for a bank account for the millions of “unbanked” residents of the region. The service recently surpassed voice to become Safaricom’s top earner after the platform’s revenues hit $745 million for the financial year ending in March.

M-Pesa customers also have access to Fuliza, an overdraft service, and can borrow short-term loans through third-party services integrated in the M-Pesa app. M-Pesa could serve as an anchor for the raft of new services that are coming online, from insurance to infinity: to market the new products, Safaricom can tap its 28.3 million active mobile money customers in Kenya, turning the service into a kind of “super app”.