Opportunities ahead: New developments and alliances could bolster insurance uptake


Although it remains a relatively small market with only two players, insurance in Djibouti continues to align with economic development. Most of the sector’s business is driven by the automotive line; however, new economic activities are expanding the market’s offerings. International cooperation with Djibouti’s neighbours has improved, as stronger commercial links have made cross-border transport and regional automotive insurance critical for seamless trade activities across the Horn of Africa.

Despite the opportunities for sector expansion, data shows that further efforts are needed to unlock the market’s potential. As of December 2016 insurance premium as a percentage of GDP stood at 1%, according to the Ministry of Economy and Finance, in Charge of Industry (Ministère de l’Economie et des Finances, Chargé de l’Industrie, MEFI).

SECTOR FIGURES: The low contribution of insurance premium to GDP, however, is partly due to the country’s significant economic acceleration. Djibouti’s GDP has been expanding rapidly in recent years, growing by 6% in 2014 and by 6.5% for 2015 and 2016, according to the IMF. In its 2017 annual report, the Central Bank of Djibouti reported that GDP rose by 6.2% that year.

Though insurance premium have been on the rise, their growth has been outpaced by that of GDP. As a result, insurance premium as a percentage of GDP dipped from 1.2% in 2014 to 1% in 2016. Nevertheless, sector premium have been increasing steadily over the years, up from DJF2.4bn ($13.5m) in 2010 to DJF3.3bn ($18.6m) in 2016.

Sector profit margins also increased from 32.5% to 38.2% in 2016, which is considerably higher than the profitability of many other markets. The Inter-African Conference for Insurance Markets, which oversees the performance of insurance in 14 countries, including Cameroon and Côte d’Ivoire, reported that these nations had average profit margins of 8.4%.

A fundamental reason that profitability has remained elevated compared to other countries is the establishment of a maximum compensation payout for several insurance segments, including third-party liability motor vehicle insurance, which accounts for more than half of the market.

“Before this regulation was implemented in 2000 there was inflation on insurance payouts,” Aden Saleh Omar, sub-director for insurance at MEFI, told OBG. “Because there were no limits, payouts for corporeal damages could vary from case to case, even if the accidents were similar. By setting a regulatory framework for this, we have been able to help maintain the sector’s profitability. Moreover, it is also advantageous for the injured person, who now has the right to an established amount determined in a transparent and equitable way.”

INSURANCE SEGMENTS: The insurance market is driven by a number of key business segments. Chief among them is the automotive segment, which accounted for 62.6%, or roughly DJF2bn ($11.3m), of premium in 2016. This is largely due to the fact that third-party liability coverage is compulsory for all drivers in Djibouti, as well as for cargo imports.

The second-biggest line is fire insurance and other damages, which accounted for 12% of total premium in 2016, up from 9.1% in 2014. Other risks and direct damages made up 10.9% of total premium in 2016, according to government figures.

The potential for further sector growth is expanding thanks to the development of new sectors. For instance, the opening of the country’s first modern retail shopping centre, the Bawadi Mall, in mid-March 2018 is expected to result in the expansion of formal retail operations. “The new mall has been very positive for the sector,” David Boucher, commercial director at GXA Assurances, one of the two insurance companies in Djibouti, told OBG. “This new type of entertainment has been warmly welcomed, and insurance companies are ready to accompany these new businesses,” he added.

REGULATION: The emergence of a domestic insurance sector in Djibouti came about with sector reforms in 1999/2000. Up until that point insurance services in the country had been provided by foreign companies with local agencies. The lack of a comprehensive insurance regulation permitted foreign operators to maintain their accounting and assets abroad, preventing insurance activities from having any real impact on the economy, and making it difficult for Djiboutian authorities to enforce the payment of insurance liabilities.

The implementation of the new law reversed the situation, compelling local insurance providers to keep all their assets and accounting inside the country. This resulted in the establishment of the market’s two operators – GXA Assurances and Assurance AMERGA – in 2001. As of 2016 GXA Assurances had the largest share of the market, with 55.4%, followed by Assurance AMERGA, with the remaining 44.6%. Market shares have become more balanced between the two insurance companies over time; in 2014 GXA Assurances held a bigger slice of the market, with 59.6%.

The sector is regulated by a dedicated insurance directorate at the MEFI. Regulation for Islamic insurance was passed in 2012 and reinforced with specific application directives in 2014. Recently, as competition began to push auto insurance prices downwards in some segments, the government implemented minimum prices for third-party liability insurance in early 2018. The measure, which has been adopted in other African insurance markets, was implemented to avoid a slowdown in the market’s key insurance segment, but also to protect the long-term solvability of the two insurance companies. “Ultimately you need to ensure that companies are able to pay those that are insured,” Omar told OBG.

INSURANCE INTEGRATION: The limited size of the market, as well as the absence of a domestic reinsurer, has forced local operators to turn to international reinsurance companies. In order to keep some reinsurance premium in the market, however, Djibouti integrated its insurance market with that of COMESA. In 2014 it became compulsory for Djiboutian insurance firms to reserve 30% of all reinsurance and 15% of all fronting agreements with regional reinsurer PTA Reinsurance Company, which is owned by the governments of Djibouti, Rwanda, Mauritius, Sudan and Kenya, among others. Besides regional financial integration, the move also allows for the securing of some reinsurance volumes in the Djiboutian economy, as both the government and the two private insurance operators have stakes in the regional reinsurance firm.

Integration has also taken place under the Yellow Card insurance scheme, a third-party motor vehicle insurance that covers material and health costs for drivers travelling across 13 COMESA countries. Effectively, the scheme eliminates the need for individual insurance coverage in each of the COMESA member states. In 2017 Djibouti accounted for 3.7% of the DJF1.6bn ($9m) in premium linked to the “yellow card” insurance system.

GROWTH POTENTIAL: Despite gradual improvement in the sector, as well as its more cohesive integration in the region, insurance intake remains limited. A lack of a deeply ingrained insurance culture, coupled with high levels of poverty, have served as obstacles to higher penetration rates. “Insurance in Djibouti is still a novel thing and somewhat misunderstood,” Nasir Abdo Abdallah, technical director at GXA Assurances, told OBG. “And so the sector faces challenges in terms of reaching new customers.”

Spending figures can attest to this claim. The average annual expenditure per capita on insurance coverage in Djibouti is $23, less than half the African average of $50 per person per year. Bringing Djibouti up to speed on this front will depend on regulatory backing and product sophistication that can adapt market offerings to the country’s specific needs.


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The Report: Djibouti 2018

Financial Services chapter from The Report: Djibouti 2018

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