African-focused insurance products will support business investors against future risks, saya CEO, Africa Specialty Risks
Advocates parametric insurance to mitigate risk for farmers Says technology to define future insurance market
MIKIR SHAH, THE CHIEF executive officer of Africa Specialty Risks, a platform that specializes in risk mitigation solutions to local and global customers across the African continent, has hinted on building out African-focused insurance and reinsurance products as groundwork to support businesses and investors against future risks such as climate change.
Despite its minimal contribution to emissions, Africa is particularly vulnerable to climate change effects. For a continent where agriculture provides employment for over half the population, the impact on livelihoods is severe. Hence, there is a need for insurance to mitigate the effect on individual farmers, Shah said.
Noting that African insurance companies cannot have the same impact on climate change as other industries, he implored insurers to have products that mitigate the impact of the volatility driven by climate change.
According to him, parametric insurance, which provides a direct payout after a qualifying event, offers a means to mitigate against unpredictable external risks in a way that traditional insurance products cannot. Given the dominance of the agricultural sector in Africa, this would avail farmers funds to secure seeds to replant after a flood or drought.
In addition, he pointed out technology as an area set to define the insurance market in the years to come as insurers are working to incorporate digitization in every product line to improve the risk mitigation process.
“Technological advances have the potential to democratize access to insurance by raising awareness and improving the affordability of products. According to a recent study, 70 percent of insurers plan to drive forward digital strategies over the next two years. Through an online platform information can be shared easily by local brokers and AI can efficiently extract information from risk assessments,” he said.
Outlining that the structure of Africa’s insurance market has historically been fragmented and dominated by a number of regional and local insurers, Shah noted that Africa is one of the real growth markets, but that the provision of covers has never been the full range of covers. “The nature of local insurers is that they have small balance sheets and they really look after the retail and SME markets.
“Filling this coverage gap represents a significant step towards unlocking investment across the continent.
Building capacity among local insurers is an essential piece of this puzzle as international investors and corporations have been limited to sourcing covers in the global market,” he said.
Ultimately, Shah highlighted that political risk and uncertainty are not a uniquely African phenomenon. In his words, “The risk exists no matter where you are”. He also pointed out that the Covid-19 pandemic has provided the ultimate unforeseen event and political destabilisation in many Western markets.
He highlighted that, “We’ve seen a rebalancing of the perception of risk over the last 24 months. Political risk mitigation products play a critical role in building a healthy investment ecosystem no matter the market and were available in the West, prior to their adoption in Africa. Across the continent people are now seeing awareness of different products and that’s the most important part.”
The ASR CEO maintained his bullish position about both the growth of Africa’s insurance sector and the economic development of the continent as a whole.
“The innovation you get in Africa is on a different level because of the need. The continent has been a leader in the uptake of mobile money, for example, which has been used to solve specific challenges around financial inclusion and confidence in transactions,” he admitted.