The Changing Nature of Insurance and Corporate Risks in Sub-Saharan Africa

Diligence International Group has a long history working in all regions of Africa and has an extensive team on the ground who understand this ever-changing landscape.

For decades, forward-thinking businesses around the world have patiently waited for Africa to emerge as an economic force and powerhouse in consumer spending. For the 1.16 billion people in these 50+ countries with diverse demographics and the promise of unprecedented growth, that moment may be at hand. This is especially true in Sub-Saharan Africa, which represents an attractive and untapped opportunity for investment and expansion.

Today, more than 300 million Africans are classified as “middle class,” up 27 percent from 2000[1]. In some areas, more than half the population is under the age of 25, and life expectancy across the region is low (less than 50 years on average)[2], presenting challenges and opportunities for insurance companies.

It is notable that, outside of South Africa, most cases of fraud on the continent are reported in Nigeria, perhaps owing to its uncertain political-military legacy that lasted until the 1999 elections. Nigeria remains the country with the highest value of reported fraud cases, amounting to more than US$3 billion.

In Ghana, which is hailed for its economic success in the region, insurance-fraud reports have climbed.  We are seeing an increase of fraud in public and private sectors, primarily in financial institutions where employees are scheming with clients. Insurance fraud is more prevalent in Nigeria and Ghana with fraud rings also migrating to West African countries such as Sierra Leone, the Ivory Coast, and Gambia. In these countries, as well as in Algeria, Mali, Niger, Chad, Kenya and others, the cultural perceptions regarding fraud are different than Western standards, making it difficult to conduct claim investigations.  Terrorist hotspots are also prime locations for insurance fraud due to high corruption and difficult logistics.

Challenges for Insurers in Africa
Opportunities for growth in Africa are, of course, compelling, but unusual challenges exist stemming from a lack of understanding of the business landscape and its associated risks. For insurers, some of these challenges include:

  • Unfamiliarity with Local Culture – Local traditions and customs can present significant barriers for uncovering fraud.  The culture across Africa is varied and manifold, consisting of a mixture of tribes that each have their own unique characteristics. It is a product of the diverse populations that today inhabit the continent of Africa.  The culture is dictated by the multi cultural tribal regions and customs, which can be a challenge for a person who is not experienced in conducting investigations in Africa.
  • A Tradition of Bribes – The ability to conduct routine business in Africa is difficult without being faced with paying bribes to the police or government officials. Getting a place at a good school; getting permission to build on your own land; starting a business: every day, ordinary tasks can involve paying people off. The cost to newly developing economies is tremendous.  According to a recent survey by KPMG[3], 22% of Africans who had contact with public services admit to having paid a bribe in the past year. In Liberia the figure was 69%. In Kenya and Nigeria, two of the most important African economies, it was 37% and 43% respectively. Across the region, a majority of respondents said that they thought corruption had worsened in their country in the past year. In South Africa, the figure was 83%.  Working investigations in Africa entails working with a team that understands the Foreign Corrupt Practices Act and related laws and knowing how to avoid encounters with these types of situations that may adversely impact an investigation.
  • Lack of Documentation – This is another area that is challenging for Western insurance companies. While regions have different practices, we have found that most Africans value emotions and feelings and do not readily rely on formal documentation.  When a death (or even merely an accident) occurs, it is unusual for a relative to immediately apply for a death certificate or file a police report, which is considered less important than the well-being of the victim(s) and/or relatives. Delayed filings should not necessarily create suspicion.  One must factor in additional circumstantial evidence before suspecting fraud. Reviewing claims from Africa through the lens of a Western culture that emphasizes documentation and traceability can be a mistake. Cases should be evaluated in their local context to avoid misjudgments.
  • Lack of Expertise in Document Analysis – Not only is lack of documentation a challenge in Africa, but the ability to interpret the available documents also requires regional knowledge. Trained eyes of experienced investigators in Africa are needed to validate documents or detect irregularities or discrepancies.  Poorly written documents do not necessarily mean they are counterfeit. They could simply be the result of a lack of resources in the office where the document originated. This is often true with civil registries in rural areas.
  • Unorthodox Funeral Rites – Most African tribes prefer to bury their dead as quickly as possible so that the deceased can join their ancestors. Other tribes may delay burial until relatives can arrive from greater distances. And some families elect to store the deceased in a morgue for weeks or months while they travel, collect donations, or plan an elaborate funeral. The day of the funeral is usually marked by a procession to the burial site, sometimes before sunrise, with singing and dancing – and some funerals last for multiple days and are widely attended. Many families bury their relatives on family land and the grave may actually be near their houses or within their compound.  For most funerals, families create a large obituary poster with the deceased’s photo and a brief bio. The dates of birth on these posters are often incorrect due to bad recordkeeping and/or because elderly people are highly revered, so age is inflated.  You must also take into account whether the insured is of Muslim or Christian faith, as either belief system will impact burial practice.

DIG has Local Expertise
Organizations doing business in Africa need a partner with deep market knowledge and an unsurpassed network of professional, reliable, and well-connected consultants who live and work in the markets they serve.  While Africa continues to evolve into an economic force and global powerhouse, it is still a unique continent with varied traditions and a multitude of cultural complexities.  This diversity, coupled with geographic logistical difficulties, is why organizations doing business in Africa need a partner with deep market knowledge and an unsurpassed network of professional, reliable, and well-connected consultants who live and work in the markets they serve.  This is what Diligence International Group has to offer.  This is the Diligence advantage.

[1] GAC, McKinsey, IMF, Ernst & Young, African Development Bank, Economist Intelligence Unit Ltd.

[2] EY The Evolution Of Insurance Regulation in Sub Saharan Africa.

[3] KPMG East Africa Insurance Landscape

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