Prices of insurance weather risks rise in Africa, say report

BY OUR REPORTER.

The prices of insurance weather risks have been rising across Africa for the past three years, executives have said in responses to a survey on the impact of climate change on the industry.

Majority of the insurance executives said the African insurance markets have seen terms and conditions tightened despite increases in primary insurers capacity and a stable atmosphere among reinsurers.

The survey report produced by Zurich-based Faber Consulting with the sub-title, “Climate Change and Its Impact on the African Insurance Sector”, found the insurance executives projecting that they expect to see these trends continuing over at least the next one year.

Presented at the recent 48th Conference and General Assembly of the African Insurance Organisation (AIO) in Nairobi, Kenya, the report noted that African insurers, reinsurers and brokers will play an important role in assessing and managing the impact of global warming on the continent that will be disproportionately affected by climate change.

Jean Baptiste Ntukamazina, AIO secretary-general, explained that, “Extreme weather events such as droughts, floods, storms and cyclones are clearly evident in Africa. These occurrences will increase in frequency and intensity across the continent.

“Africa’s exposure to natural disasters and climate change is disproportionately high, not least because of urbanisation and economic growth, but also because of low adaptive capacity and limited resources to prepare for and manage the aftermath of disasters.

“Through analysis, underwriting, investment and advice, our sector is helping to understand the complexities of climate change, working with policymakers to reduce its impact and create new opportunities, particularly in the renewable energy sector,” Ntukamazina explained.

The findings of the report are based on both secondary research and in-depth interviews. For the 2022 edition, the report producers, Faber Consulting, interviewed 26 senior executives from 24 insurers, reinsurers and brokers on the African continent from March to April 2022.

Regional impact

The report identified developing countries in Africa to be particularly vulnerable to the effects of climate change, adding that this is due to their low adaptive capacity and widespread poverty.

Across East and West Africa, climate change is forecast to affect GDP per capita by about 15 percent by 2050 under severe warming scenarios.

It said in Northern and Southern Africa, the negative impact of climate change on GDP is estimated at 10 percent, and in Central Africa, around 5 percent.

In a further detailed analysis of the impact, the report stated that the service and industrial sectors are more vulnerable to extreme rainfall and flooding than agriculture, adding that these negative impacts could affect Africa’s ability to cope and adapt to evolving extreme weather events and climate change risks.

In a further examination of the top risks that are posed as a result of climate change, the report finds that floods and droughts are the two most common climate risks for African insurance markets.
“Increasing urbanisation in Africa means that the catastrophe risk profiles of African countries are shifting from predominantly rural areas, where drought and food security are the biggest challenges, to urban areas, where floods, cyclones and earthquakes are the biggest risks,” explained Simone Lauper, a partner at Faber Consulting.

The frequency of climate risks was highlighted by insurers, according to the report, in particular tropical cyclones that have increased significantly in Mauritius, Madagascar and Mozambique, as well as floods in West and East African countries, and forest fires in North African countries and hailstorms in South Africa.

Insurers also projected an increase in the severity of extreme weather events, especially tropical storms and floods, with respondents in addition observing a sharp increase in values in urban areas, which contributes to the rising cost of claims after disasters.

Awareness yet to surge insurance demand

But while awareness of climate change is on the rise in Africa, being most pronounced at government level, followed by businesses and consumers, this is yet to result in a visible increase in demand, the report found.

Businesses are seeing penetration of commercial insurance for protection from climate change getting higher, but not so for consumers in Africa which remains low due to a combination of affordability, awareness and accessibility, said the report.

The respondents for the survey agreed that climate change offered new opportunities for the insurance industry, especially given the generally low insurance penetration.

“Compared to the global average rate of 3.3 percent, Africa’s non-life insurance penetration in 2020 was only 1.8 percent. Coming from this very low base, the potential for growth across the continent is immense,” said Andreas Bollmann, partner at Faber Consulting.

Besides, it has also been found that more business opportunities are emerging from the steep rise in renewable energy investment in Africa as the continent seeks to detach itself from its dependence on fossil fuels, work towards carbon neutrality and take advantage of the fact that Africa receives more hours of bright sunshine than any other region.

Tope Smart, AIO president, endorsing the 2022 report in a foreword said, “The African insurance and risk management industry can support the transition to a low-carbon future by aligning their risk knowledge with their strategy and investment decisions and helping their clients with relevant and innovative risk transfer solutions to reduce risk and increase climate resilience. This will ensure the insurability of climate risks in the years to come, but it will also mean that a major business opportunity is seized.”