Declining Food Production: Expert Charges African Govts. To Embrace Insurance

 

Harboursandport.com: Lagos - Following continuous decline in agricultural productivity due to climate change, African governments should set up projects and work with reinsurers/insurers to develop insurance protection for the agricultural sector.

Deputy Managing Director/Chief Operating Officer of African Reinsurance Corporation, Mr. Ken Aghoghovbia who made the assertion, noted that agriculture supports 55 to 62 per cent of the labour force in sub-Saharan Africa alone.

Speaking at the Africa Financial Industry Summit, AFIS, in Lomé, Togo, Aghoghovbia stated that extreme weather events are becoming common in sub-Saharan Africa.

 Ken Aghoghovbia, Deputy Managing Director/Chief Operating Officer, African Reinsurance Corporation

 

He said: “Extreme weather events are becoming common in sub-Saharan Africa. These events such as floods and droughts affect over 40 per cent of the region’s population and impact the production of its staples like maize, and rice thereby reinforcing the poverty cycle for the most vulnerable people.

“Agriculture supports 55 to 62 per cent of the labour force in sub-Saharan Africa alone, and the continent’s agricultural productivity growth has declined by 34 per cent since 1961 due to climate change. 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 Livestock Productivity and Resilience Support Project, 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.”

While speaking on the need for multiple premium financing solutions, Aghoghovbia said: “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.”

On the need to embed catastrophe insurance into adaptive social protection systems, Aghoghovbia said: “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 per cent. 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. An example is the ongoing Sovereign Program by the government of Morocco that has a parametric component that shielded the government from the 08 September 2023 natural catastrophe (Earthquake).”

On the need to focus on solutions that settle claims immediately, Aghoghovbia said: “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.”

On the need to focus specifically on the rising impact of natural catastrophe events, Aghoghovbia 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 modeling 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.”

While speaking on “Mounting risks: key issues that should be addressed” Aghoghovbia listed issues to be addressed as: “The impact of the increased frequency and severity of natural catastrophe events in Africa, following climate change; the high protection gap in Africa; the inability of most vulnerable people to afford insurance premiums; the impact of natural catastrophe events on strategic sectors of the economy like agriculture; as well as the inability of people to recover quickly from insured events.”