African opportunities abound – if insurers step up to support developmentCredit: Shutterstock/Riccardo Mayer

African opportunities abound – if insurers step up to support development

Africa has immense opportunities to deliver on its potential of becoming the world’s food basket and can also provide some of the energy crisis solutions, sparked in the main by the Ukraine-Russia war.

But how can insurance help support the necessary changes to make that potential a reality?

That was the question facing a group of reinsurance leaders who met for a roundtable debate, hosted by Africa Specialty Risks (ASR) on the sidelines of the recent Organisation of Eastern and Southern Africa Insurance annual conference in Zanzibar.

Mikir Shah, CEO of ASR, spelled out some of the areas in which opportunity might lie:

  • Agriculture: Immense scope for risk transfer solutions to increase resilience in the vital agricultural sector across the continent
  • Energy: Intense investment interest as an alternative source of oil and gas while adapting to new technologies and achieving net-zero energy transition
  • Climate: Africa exposed to climate volatility and increased extreme weather events – insurers have an opportunity to close the protection gap and enhance climate resilience
  • Trade: the African Union is looking to deepen ties across the continent – AfCFTA is crucial to build back better and increase resilience to future shocks, requiring political risk insurance mitigants and accessibility for SMEs.

Before those opportunities can be realised, however, Mr Shah admitted there are some challenges caused by the very same geopolitical events which provide the opportunity. Geopolitical shocks, he said, do impact risk profiles and therefore portfolio performance.

He stressed that rating adequacy needs updating to account for inflation and uncertainty and there needs to be a re-evaluation of nat cat and rating models.

Supply chain risks and business contingency planning needs to be allowed for, suggested Mr Shah, while the natural disaster and geopolitical insurance protection gap for Africa remains enormous.

Those meeting around the table agreed that there remain plenty of challenges but also took a practical approach to finding the necessary solutions.

Alice Chieza, CEO of FBC Reinsurance in Zimbabwe, said one of the initial problems across Africa is that insurers are skewed in favour of servicing corporates with their products, whereas to build, say agricultural opportunities, the reality is that the majority of farms are extremely small often running on a subsistence basis, or as small holdings at best.

That disparity will be hard to solve, she said.

Ronald Musoke, CEO of Uganda Re, agreed, adding: “Maybe some of the fault lies with reinsurers. When insurers bring us new products, we are sometimes reluctant to support them. We need to think more strategically and give new ideas more support.

“We need to hold their hands as they come up with ideas. But we also need the support of regulators – this will help in terms of pushing new ideas forward.”

“We need more in the way of insurance products designed for Africa and not just those which are developed in mature European or US markets. It is up to us to come up with solutions that are suitable for Africa,” said Ms Chieza.

The answer perhaps, suggested Jephita Gwatipedza, chief operating officer at Zep Re, lay in insurers reconsidering how they look at problems. “For example, we are working on a new project in the Horn of Africa. We have seen a lot of cattle die in that region because of drought. Our new approach is to provide feed for the cattle so that they don’t die. This not only helps the farmers maintain their livelihoods but actually it ultimately costs us less in claims.”

Ms Chieza agreed, saying: “Think of power. There are power shortages across Africa so what might sell is solar insurance. Everybody, including in the rural areas, is using solar so maybe that it the product we need to be driving.”

Amir Hussain, senior underwriter – political and credit risk, at ASR, said: “It is always the right time to take advantages of the opportunities that we have. For example, look at Ethiopia. Despite all the challenges that the country has, they have put food security as a principle. It is not just about the food but they have also tried to develop indigenous fertilisers so that they are self-sustaining.”

“Taking it forward,” said Souvik Banerjea, managing director at Continental Re (Kenya), “countries like Egypt are among the largest importers of wheat from Ukraine. There are many opportunities to improve irrigation in Egypt. If that happened, then they could reduce that dependence on imports.

“As insurers and reinsurers, we have an opportunity to support them. We could perhaps offer insurance at a lower rate to farmers who have drip irrigation, encouraging them to adopt such a method. The same thing could be replicated in Kenya and elsewhere.”

He also suggested that insurers could be working more closely with governments.

Mr Gwatipedza agreed, saying that insurers would benefit if more African governments would insure public assets. “The top ten markets in Africa suffered poor growth in real terms in 2021. In the next year, those government are spending lot of money on infrastructure, often reaching out to the developed world for funding,” he said, asking whether it was time for the African insurance market to provide solutions that would help back that funding.

Powering the continent

The geopolitical uncertainties are not just around agriculture and food security but also around energy supplies. Again, Africa lags behind much of the world in terms of the proportion of the population with access to power, but the opportunities in renewables are huge, the group agreed.

This is something that Peter Maina, CEO at East Africa Re, believes provides another major opportunity for the insurance markets. “Renewables offer a real opportunity for us, not just wind and sun but also hydropower,” he said.

Ms Chieza agreed but said key to making the most of the opportunity will be in engaging with the investors and showing how insurance can help de-risk such projects, particularly in terms of funding.

“Often these projects are funded by loans from the banks. Isn’t it about time we started more partnerships between insurers and bankers?” she asked.

Mr Shah pointed out that ASR already invests heavily into Africa and supports firms by de-risking energy projects. It all comes back to having the right products available, suggested Tatenda Katoma, CEO at Grand Reinsurance, but that hinges on having the right data to support the underwriting and pricing.

“It comes back to the whole value chain. The opportunity has always been there but it comes back to the fact that we are offering what we can rather than what is needed,” he said.

Mr Katoma admitted that reinsurers face some headwinds at the moment, particularly for those operating in Zimbabwe, caused by inflation and depreciating currencies as well as inconsistencies from government.

He is optimistic that the insurance markets across Africa have an opportunity to grow and develop more strongly, particularly in agriculture. However, one of the other challenges is that the insurance and reinsurance markets are fragmented and individually do not have the capacity to take on the largest risks.

“It is key for us to work in regional blocks or to align ourselves where there are synergies. Otherwise, if it is Kenya only or Zimbabwe only, we will not have the necessary muscle or financial strength,” he said.

Pointing out that those countries working in monetary blocks seem stronger, he added: “It seems they are better able to withstand major shocks. Look at the South African bloc or the CIMA group. If an individual country has an issue, it is not affected to the extent that those not in such groupings will be.”

Udai Patel, chairman of Afro Asian Insurance Services, said the idea of pools have been floated to bring likeminded insurers and reinsurers together. “But the practical difficulties of that,” he said “is that you have different tax regimes, different laws, different regulators and different currencies. These are the same practical challenges that the Africa Continental Free Trade Agreement (AfCFTA) will have. I still see a ten-year horizon for that to become a reality.”

“There are challenges,” admitted Mr Hussain. “But what we are trying to do is to build capacity. We hold seminars and conversations and with some of our partners we are moving towards aligned capacity. They underwrite on their own terms but together we can employ larger lines, price better and make an impact. It might be small steps but we are trying.”

Jean Alain Francis, CEO of brokers EllGeo Re, added: “What we have been talking about are the larger projects and big impact events. It is not the only picture: we have to cater for the ‘not to scale’ as well.

“I am convinced that as insurers, having a product only approach will not help. We need to bring in governments. There is work to be done and I like the idea of bringing in the investment side. Can we not allocate X% of our budget to CSR-style projects and support those not to scale projects?”

However, Mr Shah warned that would require a major regulatory shift. “There is a restriction on that because the more of your capital which you invest in non-liquid assets that are not matched by term and nature to your liabilities, then the capital charges will increase.

“While the regulators may be more relaxed about that, the ratings agencies are not. But to the extent that we can, we should be investing in some of these projects. Ideally not the ones that we insure because of a potential conflict of interest.”

Ravi Naidu, CEO at Sey Re, said: “I am more concerned about the human side. I am more excited by the idea of solutions for small-scale farmers and also about blue-collar workers who are often ignored – even by their employers.”

Natural resource opportunity

It’s a well-voiced option that Africa is a net loser when it comes to climate change, contributing less to carbon emissions but set to suffer the full effects of the changing weather.

However, it is also natural resource rich – again some that it could lose out on in terms of income should the world move away from oil and gas.

Mr Hussain asked: “Is it right to impede Africa’s growth. In my personal view, I would say absolutely not. It would be wholly unfair not to allow Africa to use its natural resources. So how do we overcome these challenges?

“Africa has huge access to gas and we need to see gas as the transition fuel to a greener environment. At the same time, Africa needs to avail itself of whatever technology there is to become greener.”

He also warned: “We need to keep an eye on green developments because the last thing we want is for Africa to be lumbered with stranded assets in oil and gas. It is a difficult juggle but we have to make those decisions and gas must be a fuel of transition.”

Mr Katoma suggested: “We should focus on all the natural resources we have – that is so much more than just oil and gas. However, even if we do that, I do not see our economies benefiting from GDP growth. The state of our economies does not reflect ownership of these resources. If we do not address this, others will continue to benefit from our resources.”

Mr Maina agreed: “There are issues of fair trade. It is almost impossible for someone who is very weak to come in and negotiate a fair deal.”

Turning this back to the reinsurance industry, Mr Gwatipedza cautioned: “Let’s look at gas and the benefit to the reinsurance industry itself because we have goldmines, we have gas, but when reinsurance structures come, Africa is left with deductibles covers – most of the exposure goes to a stronger reinsurer overseas.

“So, I think it is important that when resources are discovered, governments must develop them with the local insurance markets. But how best can we engage with governments to make us self-sustainable?”

Mr Banerjea pointed out that western media will portray Africa with a population of 1.4 billion and a high proportion of young people, so therefore the continent of opportunity.

“But the reality,” he said, “is that it is 40 million here, 80 million there, so unless there is unity those economies of scale just will not occur and we will be left with each country fending for itself.”

Mr Shah pointed out that if the marine industry was a country, it would be the sixth-worst offender in terms of greenhouse gas emissions.

He suggested that African governments should look to control more of the process and to invest in those opportunities. For example, he said, refined oil is much easier to transport, less costly and less harmful to the environment, instead of what is happening now where oil is exported, refined and then returned to Africa.

“The opportunity is really quite substantial,” stressed Mr Shah, concluding that it was time to change talk into action.