Despite confidence returning within the African insurance industry as economic recovery continues, a lack of insurance penetration remains a hindrance to market development and to better protect certain exposures, such as natural catastrophes, risk pooling might be needed.
This is according to the 3rd African Insurance Market Barometer from Dr. Schanz, Alms & Company, which explores African insurance and reinsurance industry trends in light of an improving economic situation and constantly evolving risk landscape.
The report, which includes survey responses from 28 senior executives of regional and international insurers and intermediaries operating in Africa, discusses numerous risks, challenges and opportunities across the African marketplace, ultimately revealing that more needs to be done to increase insurance penetration for many exposures, including natural catastrophe events.
In the 3rd edition of the survey, protection against natural catastrophes has been perceived as even more insufficient than in the past, which could be to do with the impacts of 2017 catastrophe events being fresh in people’s minds, but also could be down to the fact that despite severe flooding and drought conditions across the continent little is done to protect against these risks, says the report.
African insurers, notes the report, claim that the risks and the actual exposures that governments, organisations or individuals carry is hugely underestimated or in some cases even neglected, and while exposures vary across the region, risk modelling is generally as weak as penetration is low.
As a result, pricing is often inadequate, and in fact rates might actually be unaffordable or the products simply inadequate, explains the report.
“The lack of attractive and relevant products is a major impediment for the further development of political risk and natural catastrophe insurance markets in Africa,” said Yewondwossen Eteffa, Chief Executive Officer (CEO) of Ethiopian Re.
In order to provide adequate and affordable natural catastrophe protection the report suggests that risk pooling might be needed, something that already exists in the region with the African Risk Capacity (ARC), which provides drought insurance to its member countries by pooling the risks of its members and accessing the global reinsurance market for risk transfer.
Pooling across various regions enables the creation of a diversified risk pool, which in turn enhances affordability and subsequently promotes the availability of cost-effective, adequate catastrophe risk insurance coverage.
As seen with ARC and other risk pools around the world, the report notes that potentially, some government involvement might be required to drive sufficient buy-in of such a scheme, further highlighting the importance of public-private partnerships in vulnerable, emerging parts of the world in order to develop comprehensive, sustainable risk pools for exposures like natural catastrophes.
Furthermore, insurers in the report said that natural catastrophe protection might only become commercially viable if risk coverage becomes compulsory, but in order for this to happen it would need to be affordable for those that need it the most.
