In March 2015, the Democratic Republic of Congo (DRC) brought an end to the monopoly of the state company Société Nationale d’Assurances (SONAS) with the passing of the new Insurance Law (Law No 15/005) which liberalises the insurance sector. With the new Insurance Code, the DRC has now opened a new insurance market in Africa which has been controlled by the state company for decades. Thus, given the huge untapped potential and all the opportunities available, we assess in this article the drivers and challenges of the new insurance market by asking the question: is the Democratic Republic of Congo insurance market the next giant insurance market in Africa?
Overview of the African insurance market
According to the African Insurance Barometer 2016 Market Survey published by the African Insurance Organisation (AIO), African insurance premium in 2014 equalled US$ 69 billion (down from US$ 72 billion in 2013) – the insurance penetration rate in Africa was 2.8% in 2014 which still shows the potential of the African insurance market. Except for South Africa and Namibia where insurance penetration levels reached 14% (Life 11.3% and Non-life 2.7%) and 7.3% (Life 5.1 and Non-Life 2.2%) respectively, in the majority of African countries, the insurance penetration remained below 1%. Penetration rate is an indicator used to measure the level of the development of the insurance sector in a country or a region. It is defined as the amount of insurance premiums underwritten as a percentage of Gross Domestic Product (GDP).
In 2014, the 10 largest markets (South Africa, Morocco, Egypt, Nigeria, Kenya, Algeria, Angola, Namibia, Tunisia and Mauritius) generated a premium of US$ 63.4 million or 92% of total African premiums. With a share of 71% of total premium in 2014, South Africa still dominates by far the African insurance market.
With a projected Africa’s economic growth of 3.6% in 2017 (excluding Nigeria) and 4.4% in 2018, above the expected global growth of 3.4% in 2017 and 3.6% in 2018, there are growth opportunities for the African insurance market.
Liberalisation of the insurance sector in the Democratic Republic of Congo (DRC)
Before the liberalisation of the insurance sector in March 2017, the state company SONAS enjoyed a monopoly on all insurance activities in the DRC granted by the Ordonnance-Law 240 of 2 June 1967.
The new Insurance Law also establishes the Insurance Regulatory Authority and Supervisory Body (ARCA) (governed by Law no 15/005 of 17 March 2015, Law no 08/009 of 7 July 2008 and Decree no 16/001 of 26 January 2016) to regulate and supervise the insurance sector in the Democratic Republic of Congo.
Notwithstanding the delay after the liberalisation of the sector, ARCA is now operational and expects to receive from 30 June 2017 the first requests for licensing. The minimum capital requirement is US$ 10.000 million. Also the applying insurance company must have its headquarters locally in the DRC, be a limited liability company and obtain an agreement for Life or Non-Life.
Main drivers of the Democratic Republic of Congo insurance market
High population growth. With an estimated population of 77.27 million people, the Democratic Republic of Congo is a tremendous potential market by its size. Considering the pace of its population growth, according to the American organisation Population Reference Bureau (PRB), the Democratic Republic of Congo will be among the 10 most populated countries in the world in 2050.
Growing middle class. The emergence of a fast-growing middle class can support the growth of the DRC insurance market by increasing the demand for insurance products and the needs to cover risks.
Mining sector. The DRC is endowed with an abundance of mineral resources (diamonds, cobalt, gold, copper, etc.). With the mining sector being the driving force behind the economic growth over the last decade (2002-2017), the need for risk evaluations and comprehensive solutions to mitigate exposures associated with mining risks provide opportunities for insurers after the liberalisation of the DRC insurance sector.
The need for infrastructure development. New infrastructure projects across the country provide the opportunities to cover risks related to the constructions of roads, buildings, power supplies, schools, rails, airports, etc.
The availability of new technologies. Technologies will be the driving forces behind insurance penetration in the DRC facilitating the development of new products and creating additional distribution channels.
The growing mobile penetration rate will help insurance companies to provide microinsurance in the DRC using mobiles as distribution channels. Microinsurance will allow to providing insurance products to the low-income segment of the population.
Also, the expected growth of the DRC’s banking sector will support the implementation of the bancassurance model. Statistics show that 14 million individuals in the Democratic Republic of Congo have the ability to spend above US$ 15 a month for financial services (Banking and Insurance).
What are the threats and challenges for the DRC insurance market?
Political instability. Political instability, the risks of wars and terrorist attacks can affect the market confidence and create an unfriendly business environment resulting in a negative impact on the growth of the DRC insurance market.
Shortage of skills and expertise locally. One of the major challenges for the DRC after liberalisation of the insurance sector is the shortage of skilled individuals locally who can provide professional financial services.
Lack of reliable data. Lack of reliable data and information remains a challenge for risk assessments and the development of insurance products and services.
Financial literacy. The majority of people will need to be informed about the awareness of financial risks, and understand the full benefits and the limitations of insurance covers.
In conclusion, comparing the drivers of growth with the challenges, one can conclude that the DRC insurance market has the potential to become the next giant insurance market in African. But like many other African countries, the DRC will need to address effectively all the challenges and commit itself to create a modern and advanced insurance market. The biggest fear for the new DRC insurance market is to operate below its full potential as this has been the case for a country endowed with a huge natural potential but has never achieved its full potential.
Written by Axel Kasongo
See the post on LinkedIn