The World Bank Group’s Global Index Insurance Facility (GIIF) and African Reinsurance Corporation (Africa Re) have entered into an innovative risk-sharing facility agreement, that’s expected to create more affordable local insurance solutions and help protect smallholder farmers from the impact of climate change.
The agreement is meant to provide a boost to Africa’s insurance and reinsurance industry by promoting the growth of national, regional and sub-regional underwriting capacities, while supporting African economic development.
The risk-sharing facility comes in the form of an experience account that works to decrease premium levels by reimbursing insurers who experience more than a 75% annual loss ratio.
World Bank Vice President for Africa, Makhtar Diop, said; “Agriculture provides up to 60 percent of all jobs on the continent, but African farmers need greater access to insurance mechanisms to develop resilience to external shocks and to protect their livelihoods.”
With their loss ratios kept at 75%, it’s hoped that local insurers and reinsurers will be encouraged to invest in their capacity building and expand their agriculture insurance books.
As part of the project a pre-agreed pricing rule will allow local insurance companies to process claims faster, meaning insured farmers benefit from lower premium prices and receive faster payouts.
Africa Re General Managing Director and Chief Executive Officer (CEO), Corneille Karekezi, said; “We are excited about the prospect of this innovative solution to give more confidence to African insurers who wish to underwrite the agriculture class of business.
“It would enhance the development of agriculture and reach out to farmers, who represent over 60 percent of the labor force in sub-Saharan Africa, within the next decade.”
According to the World Bank, the risk-sharing facility will help to ensure index insurance expands as a risk management tool, enabling smallholder farmers to build resilience against the impact of climate change; “It is the poor and vulnerable who are the most affected by climate change and natural disasters, and insurance is a critical tool to help protect their livelihoods.
“The large and complex nature of climate change requires us to work closely with our partners, such as Africa Re, to provide access to finance to those communities that need it the most,” said Alejandro Alvarez de la Campa, Practice Manager, Finance and Markets Global Practice, the World Bank Group.
The project is expected to serve as a model to incentivise other local insurers and regional reinsurers to enter into similar agreements.
The Global Index Insurance Facility (GIIF) is a multi-donor trust fund that provides access to finance to smallholder farmers, microentrepreneurs, and microfinance institutions through the development of local markets for indexed/catastrophic insurance in developing countries.