Rising extreme whether events such as floods, and droughts have affected over 40 per cent of the region’s population. These has impacted the production of its staples like maize, and rice reinforcing the poverty cycle for the most vulnerable people, the Deputy Managing Director, Mr Ken Aghoghovbia, has said.
He spoke on the theme: “Keeping Insurance Profitable: Boosting Capacity to absorb mounting risks” at the just-concluded Africa Financial Industry Summit (AFIS) held in Lome, Togo.
Aghoghovbia said that according to the Emergency Event Database in Africa, 80 natural catastrophe events were reported in 2022; most of which were flood-related, accounting for about 92 per cent of the total US$ 8.5 billion in economic damages.
He also said that a World Weather Attribution (WWA) consortium study on the 2022 KZN floods in South Africa highlighted that the probability of recurrence of such an event, has approximately doubled due to climate change.
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A similar study conducted by the consortium, he said, on the West African floods that predominantly affected Nigeria in 2022, concluded that climate change made the flood event about 80 times more likely and approximately 20 per cent more intense.
Speaking on mounting risks and key issues that should be addressed, he stated that the impact of the Increased frequency and severity of Nat Cat (Natural Catastrophy) events in Africa, following climate change need to be addressed.
He listed others as high protection gap in Africa; inability of most vulnerable people to afford insurance premiums; impact of nat cat events on strategic sectors of the economy like Agriculture; inability of people to recover quickly from insured events.
He advised that insurance industry can address these issues by focusing specifically on the rising impact of Nat Cat events.
He said: “In Africa, a risk transfer solution “at scale” is needed to address widespread flooding and droughts, especially for the most vulnerable regions. In this regard, insurers need reliable data about the prevalent exposure, the historical losses, and the vulnerability of the regions assessed.
“This requires targeted modelling of these perils and constant monitoring using advanced technologies. This also requires a multi-stakeholder approach in light of the complexity of the problem—government, insurance industry, donor agencies, multilateral financial institutions, citizen groups, regulators and other stakeholders.
“While traditional insurance provides valuable protection for weather-related perils, it often does not cover all economic losses tied to catastrophes, requiring high out-of-pocket expenses. Parametric insurance can mitigate gaps in traditional insurance coverage and build additional resilience for protection buyers”.
Aghoghovbia also advised that catastrophe insurance has to be embedded into Adaptive Social Protection Systems.
“The systemic nature of extreme weather events simply means that they need a systemic solution since it is not possible for the private insurance sector to materially reduce the protection gap on its own.
“In 2022, while 61 per cent of global disaster losses were not covered by insurance, the protection gap in Africa was much higher at more than 90%. Therefore, Governments have to be encouraged to set up adaptive social protection systems that include an embedded natural catastrophe insurance solution. This would be structured to adequately account for the evolving risk of climate change, and should be targeted at the uninsured population in regions that are exposed to the target perils in order to improve their resilience.
In the same vein, there is need for multiple premium financing solutions, he added.
“In developing the various solutions for uninsured vulnerable groups, one cannot escape the issue of high cost of premiums. For scalable insurance solutions, the ideal situation is that governments should finance the needed premiums, either from the national budget, donor grants or from contingent lines of credit. Ultimately, this is much cheaper that post loss government expenditure.
“There should be strategic focus on the agricultural sector. Agriculture supports 55 per cent to 62 per cent of the labour force in sub-Saharan Africa alone, and that the continent’s agricultural productivity growth has declined by 34 per cent since 1961 due to climate change (source: WMO).
“The insurance industry therefore needs to put stronger focus on protecting the agriculture value chain – including crops and livestock systems. Governments should set up projects such as the L-PRES in Nigeria, and work with re/insurers to develop insurance protection. Again, this emphasises the need for co-creation of climate risk solutions with multiple stakeholders.
“The industry should also focus on solutions that settle claims immediately in less than seven days. We understand that the delays in claim settlement are directly responsible for the difficulties smallholder farmers, families and businesses face as they struggle to keep afloat. Lost incomes, failed businesses, unpaid domestic bills ultimately lead to school drop outs, disease and the poverty cycle continues to the next generation.
“Parametric insurance solutions have proved to be a successful model for paying claims promptly. The pay-out simply relies on a defined trigger being met, for instance rainfall being less than Y mm over a given period in a defined geographic zone. Pay-outs typically come within 7 days. The loss calculation is also very transparent”, he noted.