The global agricultural insurance market, including Africa, is expected to reach $80 billion value from $46 billion in 2020, growing at a compound annual growth rate (CAGR) of 5.7 per cent.
This was made known in the latest edition of the Africa Insurance Pulse on food security and agricultural insurance, launched at the 49th Conference and General Assembly of the African Insurance Organisation (AIO) in Algiers, Algeria,
Secretary-General, AIO, Jean Baptiste Ntukamazina stated that the global agricultural insurance market had grown significantly due to the increasing need for risk management tools in agriculture.
According to him, the largest markets for agricultural insurance premiums are the U.S. and China, with yearly premium volumes of USD 15 billion and USD 12 billion, which account for more than 50 per cent of the global market.
He said the report showed that despite the economic importance of the agricultural sector to many African countries, the agricultural insurance market in Africa is underdeveloped, with low penetration and a limited range of products.
He, however, said the market had been growing in recent years, driven by increased demand from farmers for risk management solutions and the development of new technologies and insurance models.
He said: “Africa’s agricultural insurance markets have grown in recent years, but with a share of only 1.6 per cent of total non-life insurance premiums in Africa, with a large untapped potential. In 2020, African agricultural insurance premiums were estimated at USD 320 million, representing 1.6 per cent of total African non-life insurance premiums of USD 19,730 million. Despite being slightly higher than the global share of 1.3 per cent, there is a large untapped potential.
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“Agricultural insurance is critical to promoting food security in Africa. It acts as a safety net for farmers and food producers by transferring the financial risk of production or distribution to the insurance sector.This stabilises food production and increases resilience to disasters. In addition, insurance provides incentives for sustainable practices such as conservation agriculture and crop diversification, thereby improving food security. Insurance also helps facilitate investment in new technologies and infrastructure, ultimately increasing agricultural productivity.”
He noted that African smallholder farmers were largely uninsured, with only one per cent of them covered by insurance.
“Agricultural insurance coverage in Africa varies widely from country to country. Today, the majority of agricultural insurance premiums are generated in just a few African markets. In particular, markets in southern Africa are more developed, partly because of the different structure of the agricultural sector, which includes large commercial farms.
“With an estimated premium volume of over USD 100 million, South Africa is by far the largest agricultural insurance market on the continent, followed by Morocco and Botswana, whose markets generate between USD 20 million and USD 40 million in premiums. The only other two markets with premium volumes in excess of USD 10 million are likely to be Nigeria and Zambia.”
However, most African markets are characterised by subsistence or smallholder farmers, he added.
“For them, agricultural insurance secures livelihoods and primarily offsets the risks associated with weather variability. This risk mitigation improves farmers’ access to credit and thus to agricultural inputs such as seeds, fertiliser or labour, which can potentially increase productivity. It also gives farmers the security they need to invest their earnings and enter into contracts with buyers and processors.
“Compared to other emerging markets, agricultural insurance coverage among smallholder farmers in Africa is very low. Only 1 per cent of smallholder farmers in Africa were insured in 2016 and 2017, compared to more than 15 per cent in Latin America and nearly 50 per cent in Asia”.
Ntukamazina pointed out that African reinsurance and insurance companies have a key role to play in addressing food security in African economies.