Artificial Intelligence: Matters Arising for the African Insurance Industry

Author: Joseph KABLAN, Senior Manager – Statistics, Research and Business Development in Africa Re.

Introduction

Artificial intelligence (AI) is no longer just a futuristic concept; it is a practical tool transforming industries worldwide, including insurance. AI has been part of the insurance sector for years through technologies like machine learning, which analyze data and automate tasks. The term “AI revolution” gained more attention with the emergence of generative AI models like ChatGPT, made publicly available in November 2022. ChatGPT’s advanced language capabilities have intrigued the business world, making AI even more appealing. The increase in computing power and advancements in AI provide compelling reasons for businesses to integrate AI into their operations. From machine learning that improves underwriting processes to AI-driven chatbots enhancing customer service, AI is helping reshape how insurers work.

In developed markets, AI plays an important role in optimizing customer service, improving risk assessment, detecting fraud, and streamlining claims processing. Similarly, AI holds significant potential in Africa, offering an opportunity to overcome traditional challenges and develop more advanced, accessible insurance products. The African insurance landscape, while diverse, is united by the increasing role of digital transformation. Mobile technology, especially the wide availability of 5G technology and rising consumer demand for accessible insurance products should be catalysts of AI adoption.

The Current State of AI in the African Insurance Industry

AI is making significant progress in Africa’s insurance sector, but its adoption varies widely across the continent. Countries like South Africa, Kenya, Nigeria, Mauritius, and parts of North Africa lead the way, driven by better digital infrastructure, government support, and strong fintech and insurtech ecosystems. These nations embrace AI technologies to address longstanding challenges in the insurance industry, including low penetration rates, inefficiency, and fraud.

In South Africa, “Discovery Health Vitality Wellness Program” has been a pioneer in using AI and data analytics to personalize health and life insurance products¹. The program leverages data from wearable devices to promote healthier living by offering incentives for healthy behavior and adjusting premiums based on lifestyle choices. This AI-driven model enhances customer engagement, improves retention, and helps insurers more accurately assess risk.
Similarly, Kenya adopts AI in insurance through partnerships between local startups and international firms. For example, “Britam Insurance’s BetaLab program” facilitates AI-driven solutions that expand microinsurance to underserved rural populations, a crucial innovation in a market where mobile technology has boosted substantial breakthroughs².

Leadway Assurance in Nigeria shows how AI is transforming the insurance industry. Their new AI tool, the “Leadway VehiScanner”, makes car inspections faster and more accurate³. When customers take photos of their vehicles, the system automatically checks for damage and calculates repair costs. This automation helps Leadway process claims faster and with fewer mistakes, making customers happier. The AI system also spots unusual patterns that might signal fraud, saving the company millions of dollars. These improvements show how AI can help insurance companies work better and make more money, even in tough markets.

As part of its broader digital transformation strategy, the government of Egypt launched its National AI Strategy in 2019 to integrate AI into critical sectors, including insurance⁴. Through initiatives like teacher training programs and AI-related vocational initiatives, Egypt prepares its workforce for AI-driven industries. The government focuses on using AI to improve economic growth and enhance service delivery.

Mauritius, the first African nation to formalize a national AI strategy, has established itself as an AI leader. Ranked 57th globally in the 2022 Government AI Readiness Index, Mauritius benefits from strong AI policies and data protection laws, positioning it to leverage AI in critical sectors, including insurance.

However, challenges remain in adopting AI across the continent. A significant hurdle is the lack of robust data infrastructure, particularly in less developed regions. While countries like South Africa and Egypt are building AI ecosystems, others struggle with inadequate digital infrastructure and low internet penetration, limiting access to the data necessary for AI to operate effectively, especially in rural areas.

Another challenge is the regulatory environment. African nations are still developing frameworks for data privacy and the ethical use of AI, which is essential for building consumer trust and ensuring compliance with global standards. For instance, while South Africa has implemented the Protection of Personal Information Act (POPIA) to regulate data usage, many other countries lack comprehensive data protection laws, hindering broader AI implementation⁵.

Despite these challenges, AI holds tremendous potential for Africa’s insurance industry. According to a report by the Policy Center for the New South, capturing just 10% of the global AI market could add US$1.2 billion to Africa’s GDP⁶. This growth is particularly vital given the continent’s low insurance penetration rate—only 2.78% in sub-Saharan Africa, compared to a global average of 7.2%. AI can enable insurers to develop more inclusive products, such as microinsurance, tailored to underserved populations⁷.

Benefits of AI for African Insurance Companies

AI adoption in African insurance brings numerous benefits, including bridging competency gaps, boosting efficiency and productivity, improving customer experience, and enhancing risk assessment. Here are specific use cases where AI, including generative AI, is making a difference:

Boosting Efficiency and Productivity: African insurance companies are leveraging generative AI to enhance efficiency and address challenges like the brain drain of skilled professionals. Generative AI helps mitigate staffing shortages by automating routine tasks, enabling insurers to operate effectively with fewer specialized workers. For example, AI tools can quickly process claims using image recognition to assess damages, reducing turnaround times and improving customer satisfaction. Azentio, a software company that has established a presence in various African countries, uses AI to automate the entire claims process—from submission to payment—reducing the average time to settle a claim⁸. This technology is valuable in high-demand situations, such as natural disasters, where timely responses are critical.
Enhancing Customer Engagement and Experience: AI-powered chatbots are revolutionizing customer service in the insurance industry by quickly handling inquiries and enhancing overall customer satisfaction. A great example is U.S.-based insurer Lemonade, which uses an AI chatbot named “Maya” to manage claims and respond to customer questions. Maya streamlines interactions by providing instant responses and effortlessly guiding customers through the claims process, resulting in a significant boost in engagement, satisfaction, and claims-handling efficiency for Lemonade. Maya has helped the company set a world record with a 2-second AI insurance claim⁹. This AI-driven approach not only lowers claims ratios but also promotes good habits among policyholders, fostering greater loyalty and engagement.
Improved Risk Assessment and Underwriting: AI-driven predictive analytics help insurers better understand customer behavior and assess risks more accurately. Old Mutual in South Africa utilizes AI to analyze social media activity, spending patterns, and other non-traditional data sources for more precise life insurance underwriting. In Kenya, Pula, a microinsurance startup, leverages AI to provide agricultural insurance to smallholder farmers. By analyzing satellite imagery and historical weather patterns, Pula enables real-time underwriting of crop insurance policies. In 2021, Pula extended AI-powered insurance coverage to over 6 million farmers across Kenya and Uganda¹⁰.
Fraud Detection and Prevention: AI plays a significant role in combating fraud in African insurance markets. In Nigeria, Leadway Assurance uses AI tools to monitor claims data and flag suspicious claims before they are paid out. In South Africa, life insurers uncovered 4,287 fraudulent and dishonest claims worth R787.6 million (US$42.9 million) in 2021, up from R587.3 million (US$31.99 million) in 2020¹¹. The chairperson of the Asisa Forensics Standing Committee credits the rise in uncovered fraudulent and dishonest claims to the long-term insurance industry’s adoption of advanced detection techniques to curb fraud. By scrutinizing claims data for anomalies or patterns suggesting fraud, insurers can reduce operational burdens and keep insurance products affordable.

Key Considerations for AI Adoption

While AI offers numerous benefits, African insurers must consider several critical factors before adopting these technologies:

Cost of Implementation: The initial investment for AI can be substantial, including acquiring infrastructure, developing algorithms, hiring skilled personnel, and maintaining systems. Insurers may also need to invest in data collection and storage systems. Collaborating with fintech startups, such as Pula and MFS Africa, can help mitigate these costs by sharing resources and leveraging specialized AI technologies without building them from scratch.
Skills Gap and Talent Development: Effective AI implementation requires investing in talent development. For Insurers, there is a need for a workforce that understands both insurance principles and AI technology. According to QuantumBlack AI report by McKinsey & Company, globally, organizations that have adopted AI in at least one business function have increased to 72% in 2024 from 55% the prior year¹². That being said, the utilization of AI in business is picking up steam. A good approach to starting to integrate AI in your organization’s operation can be like Britam Insurance in Kenya, which is partnering with local universities to create a talent pipeline for AI tools and AI specialists.
Data Challenges and AI Limitations: A significant challenge is the lack of high-quality, localized data. Many AI models are trained on Western data, which may not apply to African contexts. AI can sometimes produce “hallucinations”—outputs that are incorrect or irrelevant to the market. Insurance professionals must critically evaluate AI-generated outputs and ensure they are relevant, requiring creativity and adaptability.
Regulation, Data Privacy, and Security: Ethical use of AI is a great concern. AI systems must be transparent and fair, especially in areas like claims processing and pricing, where biases could lead to discriminatory practices. Insurers need robust governance frameworks to ensure ethical AI use. Regulatory bodies must develop guidelines to protect data privacy and consumer rights. Compliance with data privacy laws, such as South Africa’s POPIA, is essential, and failure to abide by these laws can result in hefty fines.

Conclusion

AI offers a transformative opportunity for the African insurance industry to overcome challenges and compete globally. With AI technologies, insurers can tackle the issue of competency gaps, boost operational efficiency, and develop customer-centric products that meet the needs of their populations. However, to capitalize on AI’s potential, insurers must invest in the necessary infrastructure and develop the skills required to manage AI-driven operations effectively.

Successful implementation will depend on strategic foresight. The African insurance industry must embrace AI technologies while addressing governance frameworks, data privacy, and ethical concerns. If adopted thoughtfully, AI can propel the African insurance sector into the future, allowing it to innovate, scale, and deliver more inclusive, affordable, and efficient insurance solutions across the continent. Now is the time for African insurers to seize this opportunity so they are not left behind in the rapidly evolving global insurance market.

Read more about Artificial Intelligence in this edition of Africa Re News

References

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Leadway Assurance. (2023, July 19). Leadway Assurance launches an AI-enhanced vehicle inspection tool, ‘VehiScannerAI’. Retrieved December 3, 2024, from https://www.leadway.com/leadway-assurance-launches-an-ai-enhanced-vehicle-inspection-tool-vehiscannerai/ ↩︎
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Kene-Okafor, T. (2021, January 25). Kenyan insurtech startup Pula raises $6M Series A led by TLcom Capital. TechCrunch. Retrieved December 3, 2024, from https://techcrunch.com/2021/01/25/kenyan-insurtech-startup-pula-raises-6m-series-a-led-by-tlcom-capital/ ↩︎
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