Insurance key to investment and sustainable growth in Africa
INSURANCE is not simply a grudge purchase; it presents a social good and is a very necessary contributor to sustainable growth in Africa as it can guide cities and countries in how to reduce risks on the ground, including risk coverage for those who may never have considered its value.
As the continent looks for infrastructure investment for investment to occur, insurance must be in place to build disasterresilient communities and economies.
It was with this in mind that a set of principles was discussed seven years ago in Johannesburg to ensure that sustainable development remains at the heart of the global insurance industry, a sector with global assets under management of more than $24 trillion (R300 trillion).
Last month, representatives from different areas of the insurance industry in Africa gathered again in Johannesburg to map out steps to expand sustainable insurance on the continent, recognising that insurers have a “triple role” as risk managers, institutional asset managers and risk carriers.
Based on a global consultation process that began in 2009, the Principles for
Sustainable Insurance (PSI) were developed under the guidance of the UN Environment Programme (Unep) Finance Initiative. Launched in 2012 at the UN Conference on Sustainable Development, it is the largest collaborative initiative between the UN and the insurance industry. As of this year, insurers representing more than a quarter of global premiums have joined as members of the PSI, an initiative that aims to contribute to environmental, social and economic sustainability.
In terms of Sustainable Development Goals, Africa faces numerous social, technological, economic, environmental and political challenges. It is also one of the most under-insured regions worldwide, with less than 10% of people with insurance, according to Mia Thom of the Centre for Financial Regulation and Inclusion, an independent think tank.
Nigeria, with the largest economy on the continent, has an insurance penetration rate of just 0.3%. This is in stark contrast to South Africa, which accounts for three-quarters of insurance uptake in sub-Saharan Africa.
While insurance is closely linked to economic growth, the uptake is varied across the continent. Africa, however, remains a continent of opportunity, with a young population and a growing middle class increasingly acquiring insurable assets.
Santam, South Africa’s leading general insurer, is driving the efforts of the PSI, together with a range of stakeholders, to assist all levels of society (consumers, businesses, industries, cities and countries) to better understand, prevent and reduce ESG (environmental, social and governance) risks.
According to Themba Gamedze, non-executive director at Santam, insurance has a role in keeping societies stable by balancing public and private interests.
Where this is becoming increasingly apparent is the development of African cities. Against a backdrop of high unemployment and limited collaboration between local government and insurers, the pace of adaptation to climate change and social cohesion is faltering on the continent.
Anton Cartwright, an economist with the African Centre for Cities, asks: “How can insurers become the foundation for better city development?”
Thus far, because of poor attention given to the development of African cities, risks such as disease and climate change are fomenting across the continent, leading experts to worry about the sustainability of Africa’s growth.
As part of this Africa-focused Unep-PSI gathering in Johannesburg, participants looked at some of the barriers and opportunities in the areas of urban development, agriculture and food systems, as well as the persistent “risk protection gap”, which is widening globally. In 2016, the global protection gap for natural catastrophe risks was around $180 billion.
According to Swiss Re, an estimated $4trillion has been lost globally over the past 40 years to extreme natural disaster events, of which $2.9 trillion fell victim to climate-related events.
Understanding that the insurance industry is highly interdependent with financial markets and a well-functioning banking system, some good news is emerging, with a growing consensus that companies with high ratings for ESG factors have a lower cost of capital (debt and equity).
This bodes well for the development of non-life insurance penetration as it is closely correlated to the financial sector.
Vanessa Otto-Menz is a board member for the Principles for Sustainable Insurance, a UN initiative, and head of the group strategy unit at Santam