World Economy

Scaling Up Insurance for Resilience in Africa

Scaling Up Insurance for Resilience in AfricaScaling Up Insurance for Resilience in Africa

Improved access to insurance can boost the resilience of vulnerable communities to recurrent disasters such as droughts and floods in Sub-Saharan Africa.

“Insurance needs to be recognized as an integral tool in reducing poverty as it protects those with low incomes against specific perils that are insured,” said Nelson Kuria, board member of the International Co-operative and Mutual Insurance Federation and former Chief Executive Officer of the CIC Insurance Group–Kenya, UNISDR report says.

Disasters often sink low-income communities deeper into poverty.

In parts of northern Kenya, where pastoralism is the predominant source of livelihood, recurrent droughts have decimated livestock and increased economic hardship as families have little time to replenish their herds before the next disaster strikes.

The Sendai Framework for Disaster Risk Reduction, a 15-year global roadmap adopted in March, aims to curb disaster mortality and losses substantially. It highlights the importance of an inclusive approach and the roles of public and private stakeholders alike.

The provision of insurance products is one of the ways through which the public and private sectors can help to reduce vulnerability and its debilitating consequences and empower communities.

According to a report released last month by the Cambridge Institute for Sustainability Leadership, insurance systems, whether public, private or mutual, “have the capacity to protect the basic human rights to life, livelihood and shelter”. They do so by providing policyholders with financial protection, as well as “influencing risk reduction and resilience through the conditions and incentives of insurance contracts, and enabling financial inclusion, access to credit and creating deeper reserves of investment capital at individual and collective levels”.

However, access to insurance is low in Africa.

According to Swiss Re’s 2012 global insurance report, the insurance penetration ratio in Africa was 3.65% overall, against a global average of 6.5%. Excluding South Africa, which has a ratio of 14.2%, the figure for the rest of Africa fell to just 1.04%. Insurance penetration ratio refers to the gross value of insurance premiums as a percentage of gross domestic product.

The sector needs to find ways to cover the needs of excluded groups, said Sabbir Patel, the ICMIF’s Senior Vice-President of Emerging Markets, and starting small is one way.

“We believe that micro-insurance is an effective tool for protecting the assets of the poor. It also creates a culture of understanding risk. It provides a cushion against the smaller shocks and enables a share-out of the cost of the larger shocks,” he said.