The Swazi insurance industry is still in its developmental stages, struggling to overcome low penetration rates and dependence on SACU (Southern African Customs Union) receipts. Despite this, the recovery in global financial markets has driven growth in the non-life sector, whilst a push for micro-insurance products is hoping to support industry growth by broadening its clientele.
Swazi Dependence on SACU
Swaziland is part of SACU, the purpose of which is to maintain the free interchange of goods between member countries. All customs and excise of member states is paid into a revenue fund that is subsequently redistributed according to a formula described in the initial SACU agreement.
More than 60% of Swaziland’s annual government revenue comes from SACU receipts, inextricably linking the fortunes of Swazi industry with the broader SACU group. When 2011 brought a significant decline in SACU revenues, and saw weaknesses in its expenditure controls exploited, it precipitated a severe financial crisis for Swaziland. Consequently, its insurance industry declined from a CAGR of 27.2% in 2010 to 7.3% in 2011.
Fortunately however, the economic slowdown appears to have been reversed more recently, with higher transfers from the SACU in 2012-2013 sparking a process of economic recovery. Timetric predicts this growth is to continue until 2017, supporting the demand for insurance products.
Micro-Insurance Improves Penetration
In January 2011, the RIRF (Registrar of Insurance and Retirement Funds) commissioned the Centre for Financial Regulation and Inclusion (CENFRI) to conduct research, explore opportunities and determine any challenges for Swaziland’s insurance industry. Focusing on the study of market context, by taking into account the social, economic, political and demographic environment, it recommended the promotion of micro-insurance: insurance specifically designed for low-income people, tailored for lower valued assets and compensation for illness, injury or death.
The promotion of micro-insurance therefore opens up large sectors of the Swazi population who hitherto were inappropriate targets for insurers as a result of their low income, consequently granting the Swazi insurance industry a broader clientele, and offering strong growth prospects by improving insurance penetration in the country.