East Africa’s insurance sector is prime for mergers and acquisitions as investments by private equity firms enhances the overall capacity of the industry, increasing cut-throat competition, global financial advisory firm Deloitte said in a report.

Thomas Njeru, a director at Deloitte East Africa, said there was a lot of capital flow from private equity funds and foreign insurers expected to flood the region’s insurance industry in the next few years that will make it difficult for industry leaders to maintain their pricing advantage against smaller rivals.

“This will in turn kick-start mergers and acquisitions in the short to medium term as insurers seek efficiencies from economies of scale, a phenomena which has already started unfolding over the past two years,” Xinhua quoted Njeru saying during the launch of Insurance Sector Outlook for East Africa 2015.

In November 2014, LeapFrog Investments, a private equity firm backed by George Soros and JP Morgan, bought a majority stake in Kenyan insurer Resolution in a deal valued at $18.64 million, Reuters reported.

Major infrastructure projects such as the Lamu Port Southern Sudan- Ethiopia Transport (LAPSSET) Corridor, modernization of the railways network, expansion of power generation, and the oil and gas explorations taking place in the region there has been an increase in insurance demand as project managers seek to evaluate, manage and transfer the project risks.

With fast growing economies in the region, Njeru said, insurance firms are in a good position to rise as more households join the middle-income class and the market for project risk coverage soars.

Insurance penetration in most East African countries — Kenya, Tanzania, Uganda, Rwanda and Burundi — has remained low due to misconception by their target consumers over integrity of some sector players, despite increased financial access due to mobile money use.

“With a low penetration rate of insurance and complicated insurance products, experimentation and innovation is called for in terms of insurers engineering products that are more consumer friendly, improving methods of attracting and engaging clients through traditional as well as new channels and more effectively communicating the value of proposition they offer,” Njeru said.