Interview with Christabel Michel Banda, Executive Director of the Insurers Association of Zambia (IAZ)

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ZambiaInvest interviewed Christabel Michel Banda, Executive Director of the Insurers Association of Zambia (IAZ). ZambiaInvest and Ms. Banda discussed the Zambian insurance sector, the challenges it faces and the opportunities that are available for growth and investment within the sector.

ZI: Why was there a need to form the Insurers Association of Zambia and how has the association evolved since it first began?

Christabel Banda: The Zambian economy was nationalized in the late 60’s and up until 1991, when the market was opened up, there was only one, state-owned, insurance company in the country.

When the market first opened up, new insurance companies were formed and so there was a need to have a common body to speak on behalf of members, to have a common voice for the insurance players that are now operating in the market. That’s what prompted the insurance companies to form the Insurers Association of Zambia in 1997.

From the initial 6 insurance companies that formed the association we now have 26 member companies. Accordingly, there’s now an even a bigger need to have this grouping, to have one voice and to ensure that the Zambian insurance regulatory framework is conducive for the growth of the sector.

The objectives of the association are still the same and the issues to do with protecting members’ interests remain the same, including promoting a favorable regulatory environment for healthy competition in the market and an orderly growth.

ZI: The Zambian insurance industry Gross Written Premium (GWP) grew by 7% between 2012 and 2013 compared to the 21% growth that was experienced between 2011 and 2012. Insurance penetration remained low in 2012 at 1.37%, compared with the African average of 3.65%. Do you expect the growth in the insurance sector in Zambia to pick up again?

CB: If you look at the 10 year period between 2001 and about 2010, the average growth was in excess of 18%. We saw a dip in 2011 in the sector growth, when Value Added Tax was introduced on non- life premiums.

When this was introduced in 2011, we only saw a growth of 3% on the general insurance premiums. Then, from 2011 to 2012, the growth was 21% and from 2012 to 2013, we saw a 7% market growth.

There is, however, still room for growth because, according to the 2009 FinScope survey, of the Zambian 6.4 million adult population, only less than 5% are insured. Our insurance penetration levels are very low, so any insurance company that comes up with innovative products that are able to tap into this an insured segment will find room for growth.

ZI: Can you pinpoint some sub-sector of insurance that shows the greatest potential?

CB: The informal sector offers great opportunities for insurance. Most of the products that are available right now target the formal sector, but of the Zambian population, which was14.54 million in 2013, less than 1 million Zambians are employed in the formal sector. However, there aren’t many products that are targeted to the informal sector.

We have a lot of small-scale businesses and traders. You would be surprised by the volume of informal trade that takes place, for example, at the Soweto market in Lusaka. If we have companies that come up with innovative products to target that segment, there should be a lot of growth.

With this in mind, a multi stakeholder Technical Advisory Group was formed in 2009 to encourage the development of micro-insurance in Zambia. It is a multi stakeholder group with different representatives from the government, the Pensions and Insurance Authority (PIA), from the Insurers Association of Zambia (IAZ), Insurance Brokers Association of Zambia (IBAZ), Bankers Association of Zambia (BAZ), some insurance companies, etc.

The group has been meeting for the last five years and has recorded quite a number of successes; we now have more than eight micro-insurance products currently available on the market.

So, things like that will help to put a dent in this uninsured population. There is quite a lot of room for growth in this sector.

The construction sector is another area that has a potential for growth because there is a lot of construction going. However, we don’t have legislation that compels home owners to insure.

ZI: Are you suggesting that the only way to simulate demand for insurance in Zambia is to compel people to get insurance?

CB: It’s the fastest, but you’d want the market to develop on its own with insurance companies that are quite aggressive on the target where there is need.

According to studies, one of the reasons people don’t insure is that they don’t know how they can benefit by using insurance as a risk management tool.

So one of the things that our association does is conduct consumers consumer awareness campaigns. For instance, we held an insurance week in September 2014, a week that was dedicated to raising awareness on the importance of insurance and also showcasing the various products available on the market. The insurance players were involved in explaining the benefits to the public through the various activities carried out across the country.

So we hope this will in turn assist in stimulating the demand for insurance services.

ZI: What are the challenges faced by insurance companies in Zambia?

CB: Right now the demand for insurance products is quite price sensitive as we have so many companies that are offering almost the same benefits. This makes it easier for clients to jump from one company to the other and the process is driving the prices further down.

There are a number of new insurance companies that have applied to be licensed in Zambia. The only problem that is that whoever comes into this market is fishing in the same pond. What we need is for the companies to be innovative in their product offering.

ZI: What is your forecast for the evolution of the Zambian insurance sector over the next few years?

CB: Micro-insurance will definitely play a big role, we also expect that once the proposed increase in the minimum capital requirements for insurance companies goes through we expect the increase in the number of players to slow down a bit. The current capital requirement is very low at only ZMW 1 million.

As an association, we have a 5 year strategic plan that will run from this year to 2018. One of the pillars is to ensure market expansion. We want to see a situation where the insurance industry contributes more than 5% to our Gross Domestic Product, compared to the current levels of below 1.5%.

We also want to develop and enhance the quality of the technical capacity of insurers and reinsurers,

We also want to ensure the growth of the micro-insurance segment because if we really want to grow as an industry, that’s the segment that we need to target among other things

ZI: How would you explain on the current environment in Zambia and why is it an investment destination to look at carefully?

CB: The Zambian economy has been growing consistently at more than 5% per annum over the last couple of years and actually projected to grow in excess of 6% in 2014. If you look at the top 10 performing African economies, we are there.

There are sectors that are driving this growth such as construction, agriculture and tourism. In fact, there are a number of incentives for investors in alternative sectors outside our traditional mining sector.

Also, investors can find a lot of skilled manpower in Zambia, not to mention the peace that we enjoy also as a country. As an investment destination, I think this is where it’s happening.