With some 700 million Africans living without any form of insurance protection, the race is on to close the protection gap.
Africa Risk Capacity Limited (ARC Ltd) and Africa Ahead teamed up in London recently to meet with humanitarian agencies to explore practical solutions to closing that gap and involving agencies, donors and governments in the effort.
As Lesley Ndlovu, CEO of ARC Ltd, explained, “What drives us and motivates us is the mandate we have from the African Union which created ARC in response to the increase in frequency and severity of natural disasters.
“What we want to achieve is to protect as many people as we possibly can using insurance. It is estimated that only 2% of all disaster financing is arranged before the disaster. And we can all agree 2% is rather low and it needs to be much greater than that.”
Ndlovu added, “On the African continent, ARC provides 85% of all pre-arranged disaster financing. We are a critical player in terms of disaster risk response.”
The company is working in three ways to grow the number of people insured. Firstly, it works with the government via its sovereign insurance product – in that case the insured is simply the government and ARC Ltd pays any claim to the government which then implements the response.
However, Ndlovu explained, “In 2019 it became obvious that this approach was inadequate given the size and the needs within countries, so we launched the Replica programme, which is insurance dedicated to the humanitarian agencies. The idea there is that simply, in the aftermath of a disaster, we know that all of you scramble to find funds to scale up operations in the country to supplement the government response, and this is a practical solution. This programme has grown and has been extremely successful.”
The third way that ARC Ltd has gone about it is launching insurance programmes which usually target small- to medium-scale farmers. These programmes are organised via national agricultural schemes, via an aggregator of sorts, simply because its business model works better at scale.
“We don’t have the distribution capability to address each and every farmer one at a time,” said Ndlovu.
“Through this approach, we are providing insurance to 50 million people a year but then we are looking to cover even more people because we estimate that there are 700 million people in Africa whose lives and livelihoods are at risk as a result of the impact of climate change.”
He said that further innovation is needed to bring the humanitarian sector together with insurers to support the humanitarian response in a crisis.
“As we have demonstrated, we can create sector-specific solutions as well as changing attachment points or looking at a multi-country approach. In so doing, we can really increase the number of people that we are covering and close the protection gap.”
After a series of round tables through the day, Eleanor Kigen, business development lead for east and southern Africa at ARC Ltd, said delegates recognised that among the priorities were finding solutions in how to strengthen government food systems from farm to fork, particularly enabling small producers to contribute to the food supply chain.
She said, “There is an urgent need to reduce vulnerability for these farmers. One of the challenges is that 30% of water used in farming is groundwater.”
Kigen gave the example of Bangladesh, where 54% of the rice crop is dependent on ground water. However, because the crop is grown in the dry season, a drop in the water supply is putting food at risk.
Key to solutions around this, delegates said there is a need to change mindsets and to convince smallholder farmers to pay for insurance, rather than to rely on aid after a crisis.
To do that, the delegates felt there is a need to improve skill sets and to concentrate on education so that farmers truly understand the rationale for insurance. One practical suggestion was to develop the existing case studies – of which there are plenty – and to adapt them to become more relevant to the smallholder farmers.
The biggest challenge, Kigen said, is the red tape, but also the need to link meso, micro and macro insurance more efficiently so that everyone understands the differences and targets funding more appropriately. She also acknowledged the funding gap and the enormous amount of work needed to better improve the funding flow into Africa.
Lorraine Njue, head of strategy and partnerships at ARC Ltd, agreed that red tape and bureaucracy are a major headache, admitting that any collaboration with government can be slow and is often insufficient.
However, more positively, she said delegates produced some suggestions.
“There are three main issues: How can we work better operationally; how can we improve processes to have more clarity; and how can we make the process more efficient,” she said.
Our solution suggested by the participants in the workshop was to continue having collaborative discussions with the government. “We can only improve the situation if we keep knocking on the door,” said Njue.
“Separately, we also want to review the legal framework with each Replica programme and see what the gaps are and then develop a paper to address that.”
Overall, delegates agreed that there needed to be some bold steps taken to make a difference. Continuing as normal was not an option as climate change risks continue to grow.
As one of the delegates said, “We have to make sure the finance flows properly to meet the scale of the challenge. It is a huge challenge and the needs to meet it are equally huge.”
Discussing non-sovereign business, they agreed it would make sense to see it scaled but also for it to become an enabler of investment. In that way, the market would contribute positively to solving a problem and actively encourage more investment into the continent.
Non-sovereign business can also be used more widely for de-risking such opportunities and be used on a sector-by-sector basis to tackle differing issues. For example, they agreed it could work well for the education sector and also for health.
But the participants were aware that none of this can be done in isolation. Communication and education would be key to the future success of any project – not only talking with the smallholder farmer, for example, but also talking with the government so there is a deeper understanding of the benefits of insurance from the top down.
Finally, they suggested that the insurance industry makes greater use of case studies and starts to prove the case for insurance. By directly relating the impact of insurance on risk reduction, the delegates believed that more governments, businesses and individuals would understand the arguments and start to embrace insurance as a concept.
They all agreed that insurance was a massively useful tool in smoothing the rollercoaster of demand on funding and could help reduce the annual battle to find funding for Africa ahead of a crisis rather than afterwards.
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