Risk management in Africa - the challenges and opportunities - July 2004
Since South Africa's return to the international fold in 1994, a growing number of local companies have expanded into Africa, creating opportunities and challenges alike for the continent's insurance industries.

The lack of capacity in African insurance markets - both in terms of sums to be insured and the breadth of cover required - necessitates a combined solution involving both local and international markets, all while taking cognizance of local restrictions pertaining to placement of insurance outside the specific country's borders.

Political and economic instability remains one of the biggest hurdles to be overcome by businesses moving into Africa. Limitations in respect of foreign ownership; restrictive regulations and excessive bureaucracy; corruption in the public and private sectors; lack of corporate governance; depreciation of local currencies; inconvertibility of currencies or the inability to repatriate dividends and infrastructural limitations are just some of the difficulties, and realities, of doing business in Africa. However, businesses in Botswana, Namibia, Swaziland, Tanzania and Zimbabwe are currently producing exceptional results in local currency terms and the future prospects for Kenya and Mozambique are positive. It is also generally not difficult for local insurers to access international capacity provided that reinsurers are satisfied that the direct insurer is of good standing and will remit premiums timeously - an African culture of late or non payment of premiums means that premium warranties are often applied by reinsurers.

The regulatory environment in the rest of Africa is similar to South Africa in that most countries provide a degree of protection for the local insurance industry and risks can generally only be placed outside the country in special circumstances.

For example, where the local market is unable to offer sufficient capacity or the class of insurance is not available. The challenge of course lies in dovetailing local cover with global or regional insurance and self insurance programmes.

While the availability of foreign currency is generally not a problem in most parts of Africa there are sometimes delays caused by shortages in a country's central bank. The problems experienced in Zimbabwe (difficulty in repatriating dividends and obtaining payment for services provided from South Africa) have highlighted the need for companies to have a reasonable spread of investments so as not to be overly exposed to the political and economic risks pertaining to any one country.

Regulators across the continent are increasingly seeking to grow local market knowledge by insisting that their insurers have sight of the larger and more complex risks so that they can start to understand how the international market reacts to such risks and what terms they apply. And there is no doubt that, in time, local markets will grow both in terms of sophistication and size.

While there is generally a more traditional approach to insurance in Africa, with relatively modest self insurance retentions, there is increasing pressure from larger organisations for alternative forms of risk transfer. One such example is the cell captive insurer recently established by the Zimbabwe Electricity Authority.

Africa provides many exciting growth opportunities - especially with the advent of the NEPAD initiatives ? however, it is vitally important for the long term success of any forays northwards, that risks are managed and provided for responsibility and appropriately.