Absa Financial Services eyes Kenya next
LUSAKA - Kenya is the next market Absa Financial Services plans to enter, CE Willie Lategan says, after the unit last week launched a greenfield life insurance business in Zambia.
The Zambian venture, launched in partnership with Absa's parent company Barclays, is part of Absa's strategy to expand its bancassurance business, initially in markets where Barclays has operations, before venturing into virgin territory.
It is the third insurance business in which Absa has invested, after starting a life insurer in Botswana in March 2011, and acquiring Global Alliance Seguros in Mozambique in September 2011.
Mr Lategan says Kenya will provide a natural springboard into the neighbouring East African countries of Tanzania and Uganda. West Africa will be the next target market but is not an immediate priority.
He says that by using the bancassurance model, Absa will not need to build branch infrastructure as it will piggy-back on Barclays'. In Zambia, for example, Barclays has 50 branches.
The bancassurance model is similar to the one being successfully used in the region by insurer Liberty in partnership with its controlling shareholder, Standard Bank, which is in 18 markets including South Africa.
"That is why we are sticking to a tested business (bancassurance) model where we can leverage on the (Barclays) branch and customer base and brand," Mr Lategan says. "Because we are not building branch infrastructure, the cost of providing insurance is cheaper, which allows us to offer lower premiums."
Absa and Barclays are initially focusing on such products as life insurance, which provides relatively stable annuity premium income and has a much more predictable claims history than short-term insurance, where lapse rates are more volatile and susceptible to tough economic times.
However, it will not be a walk in the park for Absa to grow market share in the insurance market in sub-Saharan Africa, where in addition to large domestic rivals, it is also facing other JSE-listed insurers such as Old Mutual, Sanlam and MMI Holdings.
These groups already have sizeable - and growing - insurance businesses, with Old Mutual planning to expand its Southern African businesses and a new venture in Nigeria. MMI, with operations in 12 countries including South Africa, is also scaling up in markets such as Namibia, according to group CEO Nicolaas Kruger.
Mr Lategan says Absa and Barclays are focusing less on market share growth than on "steady, profitable growth" of its insurance business in the markets it has entered.
In Zambia, where Sanlam-owned African Life is the dominant player, Absa plans to target the micro-insurance segment to bring into the market the uninsured and under-insured segment. This particularly includes the small and medium scale sector, as well as selling life policies and other related products to individual customers.
He says Absa will also offer nonlife insurance products in Botswana and Zambia in partnership with third parties such as unlisted South African short-term insurer Hollard.
"We have a unique model where we involve three players in product design: the bank (Barclays), the local staff who have insight and knowledge into the market, and the skills and product knowledge from Absa," he says.
Mr Lategan says the two Absa insurance businesses in Botswana and Mozambique are profitable, with the latter having grown to become the second biggest in the market. "West Africa is attractive, particularly Ghana (where Barclays already has a presence), but we will take it step by step."
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