The grant is to be channeled through FSD Africa’s BimaLab accelerator programme to boost innovation in the sector.
Nairobi, November 30th, 2022 – Swiss Re Foundation has announced a USD 500,000 grant for Africa’s insurance sector to spur innovation of insurance solutions for the underserved. The funding, to be distributed through the FSD Africa’s supported BimaLab insurance accelerator programme, will unlock and accelerate the transformation of Africa’s insurance sector through innovative offerings for the sector’s unique landscape.
Recently, there has been increased attention to Africa’s expanding and promising insurance sector. At the COP27 Summit, over 85 African insurers pledged to create a financing facility to provide $14 billion to support communities impacted by climate change. The cover will help the continent’s most vulnerable communities deal with climate disaster risks such as floods and droughts, cementing the insurance industry’s position in driving the continent’s economic expansion.
Despite its massive potential, research by Brookings Institute indicates that Africa’s insurance sector has a low penetration of 2.78% compared to the global average insurance penetration rate of 7.23%.
Low awareness and low employment levels in the formal sectors, coupled with a lack of trust and experience with traditional insurance institutions, have been attributed to low penetration rates.
To harness the opportunities presented by the insurance sector, FSD Africa, with its partners, launched the BimaLab accelerator programme in 2020. The programme provides resources needed by talented insurtech founders of early to mid-stage start-ups to leverage insurance technology and promote insurance penetration in the continent.
The BimaLab program now in Kenya, Ghana and Nigeria has enabled 40 insurtechs to gain visibility and push for resources to scale their innovations. So far, 43 unique products and services have reached over 600,000 customers since the program started in 2020.
Plans to launch the BimaLab Accelerator Programme in Ethiopia, Uganda, Rwanda, Zimbabwe, Malawi, Egypt, and Morocco are underway.
The support of the Swiss Re Foundation will further facilitate the growth of high-impact insurtechs through introducing and scaling innovative products and services to the underserved African market.
Commenting on the new grant, Kelvin Massingham, Director of Risk and Resilience, FSD Africa, said: “The importance of the insurance sector to alleviate the challenges of today cannot be understated. While the African continent continues to report low insurance uptake, there are numerous opportunities for innovators in insurance. We are optimistic that through the grant, the underserved communities will soon start enjoying the safety net provided by insurance from many external threats like natural disasters, health threats, and economic disruptions.”
Elias Omondi, Senior Manager of Risk Regulations at FSD Africa, said: “The support of the Swiss Re Foundation is a significant step towards building an innovative and climate-focused insurance industry that will accommodate the evolving needs of the uninsured.”
Stefan Huber Fux, Director of the Swiss Re Foundation said “We acknowledge the role of the insurance sector in spurring the growth and development of the African continent. Through programmes such as BimaLab, the most vulnerable and low-income people will gain from innovative, affordable, and efficient insurance products and services.”
COP27 may be over but its impact will be felt for many decades to come.
Discussions highlighted nature’s pivotal role in tackling the climate crisis.
Here we reflect on 10 areas where progress is being made on climate action.
The implications of COP27 will likely be felt for decades to come, for better or worse. While a broad range of analysis has already been published on the ultimate outcomes of COP27, this summary includes reflections on how nature was the stand out topic at COP27 – here are the top ten takeaways.
1. Calls for structural reform of finance for nature and climate
It was impossible to pass a day at COP27 without having a conversation about finance – but finance means different things to different people. The breakthrough on loss and damage funding made the headlines, but this year there was much attention on structural reform of the financial system as well as the need to create innovative mechanisms that support nature and climate outcomes at national and ecosystem levels.
The Bridgetown agenda remained a central theme within these discussions. Before COP27, there was much focus on the need for financing adaptation measures – although in fact, very little progressed on this agenda from Glasgow. The multilateral development banks are also under scrutiny – sovereign bonds and sustainability-linked loans and bonds have been high on the agenda. Leading financial institutions from Japan to Norway to Brazil, all signatories to the Financial Sector Commitment on Eliminating Commodity-driven Deforestation have been moving forward with implementation through the Finance Sector Deforestation Action (FSDA) initiative.
FSDA members have published shared investor expectations for companies, and they are stepping up engagement activity and are working with policymakers and data providers. More broadly, the 10 point plan for financing biodiversity moved ahead at COP27 with a ministerial meeting between 16 countries representing five continents to set a pathway for bridging the global biodiversity finance gap – and looking ahead to the biodiversity COP15 in December 2020.
2. Biodiversity COP15 looms large
The biodiversity COP is usually a distant cousin to the climate COP, but in Egypt there was a considerable amount of attention on the need to create a “sister agreement” – a Paris moment for nature. The messaging that the climate and nature crises are deeply linked was made loud and clear at COP27.
On Biodiversity Day, the Paris climate champions urged leaders to step up action to address the accelerating loss of nature by delivering an ambitious biodiversity agreement at COP15 in Montreal. On the same day, more than 340 civil society leaders called on governments to prioritise the biodiversity COP, and a new survey from more than 400 experts from 90 countries revealed that a shocking 88% believe that the state of the world’s nature is “alarming” or “catastrophic and potentially irreversible”.
However, even though many countries were pushing for COP15 to be included in the COP27 text, the attempt failed – a disappointing outcome as net-zero emissions will not be enough to limit rapidly rising temperatures. Governments also need to halt and reverse biodiversity loss by 2030.
3. Strong signs of political will for forests
The creation of the Forest and Climate Leaders’ Partnership (FCLP), announced at the World Leaders’ Summit, is being driven by the reality that there is no time to lose when it comes to halt and reverse forest loss by 2030, with the intent to demonstrate success by COP28. The leaders of the 28 – and counting – FCLP member countries serve as key actors in the partnership, and its ultimate priority setters.
The FCLP will hold regular meetings, including leader-level moments at the beginning of climate COPs to encourage accountability. Starting in 2023, the FCLP will also publish an annual Global Progress Report that includes independent assessments of global progress toward the 2030 goal, as well as summarising progress made by the FCLP itself, including in its action areas and initiatives.
The presence of Brazil’s president elect, Luiz Inacio Lula da Silva, put a spotlight on the Amazon at COP27 – with Brazil promising to prioritise stopping deforestation and offering to host COP30 in three years’ time. Also, an announcement by Brazil, Indonesia and the Democratic Republic of Congo – made in Indonesia ahead of the G20 – signalled their intentions to work together to protect their vast swathes of tropical forests, earning the nickname “the OPEC of rainforests”.
This chart shows the total hectares of forest that have been destroyed in different countries. Source: Statista.
4. Implementation of forest pledges
Coming into COP27, there were clear signs that the global community is not yet on track to halt and reverse forest loss and degradation by 2030. Another UN-led report found that for 2030 goals to remain within reach, a one gigaton milestone of emissions reductions from forests must be achieved not later than 2025, and yearly after that, but that current public and private commitments to pay for emissions reductions are only at 24% of the gigaton milestone goal.
However, it wasn’t all bad news on the implementation front. Nature4Climate’s new joint commitment tracker found that 55% of the commitments tracked are demonstrating substantial signs of progress. There are also some bright spots to celebrate. For example, tropical Asia is on the path toward reversing forest loss by 2030: Indonesia’s deforestation rate dropped by 25% last year, and Malaysia also reported a fall of 24% in the pace of forest loss last year.
Forest pledges made in Glasgow at COP26 were also in the spotlight. In 2021, $2.67 billion was put towards forest-related programmes in developing countries – 22% of the $12 billion pledged at COP26, meaning that donors are on track to deliver by 2025. Private sector funds are also moving: for example, one year after launch, the IFACC initiative is scaling innovative financial mechanisms to help farmers without further conversion of the Amazon, Cerrado and Chaco ecosystems.
So far, commitments have risen from $3 billion to $4.2 billion and disbursements are expected to exceed $100 million this year. Similarly, the public-private LEAF Coalition has mobilised an additional $500 million in private finance, bringing a total of $1.5 billion in support of tropical forest protection. This is part of $3.6 billion of new private finance announced at the climate summit.
And exciting private sector initiatives worth noting include the launch of a new company Biomas (by Suzano, Santander, Itau, Marfrig, Rabobank and Vale) to restore 4 million hectares in the Amazon, the Mata Atlantica rainforest and the Cerrado. Also, 1t.org announced pledges from its first four Indian companies (Vedanta, ReNew Power, CSC Group and Mahindra) to join 75 other companies worldwide committed to planting and growing 7 billion trees in more than 60 countries.
5. Nature of negotiations
In the negotiations, nature-based solutions were included in the COP27 text for the first time, with forests, oceans and agriculture each having their own section. The Koronivia Dialogue – the track where food and agriculture is discussed at the UNFCCC – has finally been included in the text, but all eyes turn to COP28 for the focus required to truly transform food systems.
In the wonderful world of Article 6, things remain complex. Last year, at COP26 in Glasgow, countries decided on the basic framework of Article 6. Throughout 2022, countries have been focused on how to operationalise the Article 6 mechanism that allows countries to actually begin trading. In Egypt, the discussions were very technical – such as how registries are going to work, how countries will report on the trading, and what information should be submitted –with the aim of making things easy to track.
For nature, it was decided at COP26 that land use emissions were part of Article 6 – as it includes all sources and sinks. The focus in Egypt has been on article 6.4 – the mechanism for developing guidance on activities involving removals which includes reforestation, restoration, afforestation etc.
6. Technology meets nature
In a similar way to finance, “tech” gets everywhere at climate COPs, although historically that is not really the case when it comes to nature – not this year however. In Egypt, the need for high-tech solutions for nature and climate challenges was a constant refrain. The role of tech in improving transparency and accountability in monitoring supply chains (and tackling deforestation) and also in enhancing the integrity of carbon markets was evident everywhere.
Notable developments include Verra’s partnership with Pachama to pilot a digital measuring, reporting and verification platform for forest carbon. A new Forest Data Partnership was announced by WRI, FAO, USAID, Google, NASA, Unilever and the US State Department. WRI’s Land and Carbon Lab was on show demonstrating the new frontier of measuring carbon stocks and flows associated with land use.
Nature4Climate demonstrated a beta version of its new online platform (naturebase) to help decision makers implement natural climate solutions. And the new Global Renewable Energy Watch – a partnership between The Nature Conservancy, Microsoft and Planet – was also demonstrated. Capturing this emerging trend, Nature4Climate and Capital for Climate launched a report on the size and potential of the whole “nature tech” market that was discussed at an event in the Nature Zone.
7. Food finally arrives on the scene
Food was on everyone’s mind at COP27 in Egypt – but for the first time, it also made it onto the main agenda – being recognised in the final text and also with at least five event spaces solely dedicated to food and agriculture.
Important developments included the Food and Agriculture for Sustainable Transformation Initiative (FAST) launched by the Egyptian COP presidency – a multi stakeholder partnership to accelerate access to finance, build capacity and encourage policy development to ensure food security in countries most vulnerable to climate change.
Also related to food, 14 of the world’s largest agricultural trading and processing companies shared their roadmap to 1.5℃ – to mixed reactions – with detailed plans on outlining how they will remove deforestation from their agricultural commodity supply chains by 2025.
8. An increasingly blue COP
Observers have expressed encouragement at this being “an increasingly blue COP”, with the ocean called out in the final declaration and the first ever ocean pavilion in the blue zone. Several declarations reinforced the recognition of the fundamental role of the ocean in the climate system.
The critical role that Indigenous peoples and local communities (IPLCs) play as guardians of the forest is now firmly established and beyond question. At COP27, there was a polite but palpable frustration from IPLCs that climate funds are not reaching them. This massive deficit is increasingly being acknowledged by both by Indigenous and non-Indigenous actors, with a wide range of events dedicated to this topic.
While COP27 was a good space for Indigenous and non-Indigenous actors to share knowledge, to listen deeply to one another, to build relationships, it clearly can’t be the only space. While there are a number of encouraging signs of progress, including linking IPLCs with high-integrity markets, it’s clear the clock is ticking and IPLCs are getting impatient.
Clearly we must act with urgency, but it’s critical to take the time to build trust and mutual understanding, including absolute adherence to free, prior and informed consent protocols. This is necessary so that IPLCs can decide (or not) to participate in carbon markets with transparency, full understanding, and free consent. This takes time.
10. African-led initiatives take centre stage
While this was not the “African COP” that many hoped it might be, there were still a range of significant announcements coming out of Egypt that highlighted the continent’s potential as a natural capital powerhouse. These included the launch of the Africa Carbon Markets initiative, the Declaration for the Africa Sustainable Commodities Initiative, the launch of a $2 billion African restoration fund, a funding boost for Africa’s visionary Great Green Wall initiatives, and the announcement by the Global EverGreening Alliance and Climate Impact Partners of a new partnership to up to $330 million in community-led removal programs across Africa and Asia.
Environmental Advocacy groups including the Lekki Bird Club, Green Action, the Nigerian Conservation Foundation and Green Fingers Wildlife Initiative have raised awareness of the value of wetlands to Lagos State and Nigeria.
This was the highlight of the Photography Exhibition themed, “Wetlands for Man and Biodiversity”, hosted by the Deputy British High Commissioner in Lagos, Ben Llewellyn-Jones.
Foremost Environmentalist, Mr Desmond Majekodunmi of Lufasi Conservation Park spoke on the importance of bringing “Our collective attention and awareness to the ongoing deforestation of the Lagos wetlands and the important role they play in our environmental and economic progress in Lagos”.
He said: “What people see as swampy, stagnant water is key to many facets of our city life such as being a natural, low-cost wastewater treatment, flood mitigation, climate control and even providing a natural breeding ground that supports our fishing populations.”
Majekodunmi also warned that “We are, however, close to losing most of our natural wetlands due to factors like overpopulation and the need for more housing which has led to the sand filling of some of these wetlands to accommodate the housing needs of urban Lagos.
“However, when a wetland is sand-filled, the soil hardens and it loses the ability to prevent flooding; instead, it makes flooding worse. This is particularly important for Lagos, where the total economic losses due to flooding across the state have been estimated at $4 billion per year, which is 4.1 per cent of the state’s GDP or 1.0 per cent of the national GDP.”
This exhibition is the second in the awareness campaign organized by the environmentalists for the National Theatre Igamu wetlands. The first was a 3-day exhibition held in July this year and was visited by the British High Commissioner, Catriona Laing CB, environmentalists, the press and schools from the local area.
The National Theatre is currently being renovated into a world-class space for creatives by the Bankers Committee and the various stakeholders are excited about this development as it presents an opportunity to showcase the mangroves and the beauty they add to the Lagos environment.
It also allows the developers the opportunity to set the standard on how to sustainably develop in urban areas whilst restoring the integrity of the wetlands.
Thus creating a world-class wetlands education centre within the National Theatre that will be used by schools, students, researchers, eco-tourists and Lagos residents. This approach would help to educate people about the value of wetlands, mangroves, and associated wildlife and enable them to experience the wetlands.
It is therefore important to ensure that the National Theatre wetlands are restored to create one of Africa’s best practice wetlands in line with models such as the London Wetland Centre and the Panama Bay Wetland (Tocumen International Airport) creating a culture of sustainability in Lagos which would inspire the leaders of tomorrow across Africa.
The British High Commissioner, Ben Llewelyn-Jones said: “Protection and restoration of critical ecosystems such as wetlands require international cooperation, policy-making, capacity building, and technology transfer.
In January 2021, the UK announced a commitment of at least £3 billion from our existing commitment of £11.6bn for international climate finance.
This money has been earmarked for climate change solutions that protect biodiversity-rich land and ocean ecosystems, and support livelihoods.
Llewelyn-Jones added: “In Nigeria, we are collaborating with the Federal and State Governments, as well as Civil Society Organisations to create the enabling environment and fundamental drivers that are key to conservation and the sustainable use of nature.
“Through the UK-funded FSD Africa program, we are committed to supporting the Lagos State Government’s initiative to build a sustainable, and flood-resilient mega city; by helping to mobilise green financing via the capital market and insurance industry.”
The Climate Finance Accelerator (CFA) is a technical assistance programme funded by the UK government to help middle-income countries achieve national climate plans. By identifying the challenges facing substantial projects and with help of experts, the CFA seeks to unlock a steady flow of funding for climate projects at scale and create a pipeline of “investment ready” low-carbon projects, states the programme’s website.
The British Embassy in Egypt celebrated the launch of the programme in Egypt at the beginning of the month and an increase in the number of countries benefiting from the project to eight worldwide.
CFA Egypt aims to help in designing low-carbon, investable projects; establish climate finance networks; improve participants’ understanding of climate finance; increase policymakers’ awareness of the impact of climate finance on the environment; and finally contribute to embedding a permanent CFA process in Egypt.
During the embassy event, FSD Africa, a UK organisation aiming to deepen the continent’s financial sector, and the Egyptian Financial Regulatory Authority (FRA) signed a Memorandum of Understanding (MoU) to help make the financial sector in Egypt more sustainable.
Minister of Environment Yasmine Fouad, also ministerial coordinator and envoy for the UN COP27 Climate Conference, and Minister of International Cooperation Rania Al-Mashat participated virtually in the launch ceremony.
Al-Mashat delivered a speech during the event stressing the need for “multilateral cooperation and joint efforts” with development partners to support the transition from pledges to implementation, stimulate climate action efforts, and implement projects that reduce harmful emissions.
Speaking of the CFA, she said it will work with the government to scale up climate finance to advance national efforts to transition to a green economy.
British Ambassador to Egypt Gareth Bayley, said that “the Climate Finance Accelerator is already making a difference elsewhere in Africa and around the world. It is great news that Egypt will now feature as part of this innovative approach to help low-carbon projects secure investment.”
Climate financing is one of the key demands for the COP27, and Bayley said that the introduction of the CFA in Egypt will show that “we are not only listening, but also taking action.”
Meanwhile, Chair of the Egyptian Financial Regulatory Authority Mohamed Farid said that the CFA will ensure the alignment of financial flows towards climate action, as it requires the mobilisation of huge financial resources.
Funded by the UK government, the global technical assistance programme aims to streamline and trickle down the needed financial support for low-carbon projects to deliver on countries’ ambitions to limit global warming to 1.5° C.
The GBP 10.8 million, four-year programme is looking to select eight to 12 projects at the pre-feasibility stage and provide them access to $1 million in funding, with each accelerator cycle for the selected project developers lasting six to nine months. Applications to benefit from the project closed on 16 October.
The projects will be monitored and chosen by various international and Egyptian experts with practical, technical, and financial support and advice, in addition to gender equality and social-inclusion experts who will help increase candidates’ chances of securing the financing they require.
The project selection will be based on four main criteria: climate mitigation potential, project maturity, financial structuring, and gender equality and social inclusion.
The programme is funded by International Climate Finance (ICF) on behalf of the UK government and is being delivered locally by PricewaterhouseCoopers UK and implemented by Genesis Analytics and Acumen Consulting Egypt.
It will help in securing investment for climate-friendly projects and ultimately supporting Egypt to develop a sustainable pipeline of bankable, low-carbon projects.
The CFA offers a wide range of benefits to assist climate-mitigation projects, such as access to investors, coaching and best practice insights, networking opportunities, increased visibility, and achieving low-carbon objectives.
In order for projects to be eligible, they should have direct greenhouse-gas emission reductions, have a minimum of $1 million financing needs, be at the pre-feasibility stage of development, and will generate commercially viable returns in the long term. They should also demonstrate positive social impacts and contribute to furthering gender equality and social inclusion.
The CFA comes within the framework of cooperation with the UK government to advance climate action. It aims to partner up with governments in middle-income countries to stimulate increased climate finance through joint work between funding providers, experts, and those concerned with climate action.
The CFA also supports projects that contribute to the implementation of Nationally Determined Contributions (NDCs), as determined under the 2015 Paris Agreement on Climate Change, and builds the capacities of managers working in these projects.
It has been applied in seven other countries, namely Nigeria, Mexico, Colombia, Turkey, South Africa, Pakistan, and Peru.
The UK aims to provide technical assistance worth LE10 million as part of joint efforts between both governments to expand the scope of climate action.
The National Insurance Commission (NAICOM) has promised to raise the level of the insurance services in Nigeria to match global standards.
Sunday Thomas, the commissioner for Insurance/CEO National Insurance Commission (NAICOM) said this during a seminar organised by the Commission for insurance journalists in Lagos with the theme “The Future of the Nigerian Insurance Sector in a Shifting Landscape.”
Thomas said they will do this through continued mutual collaboration with the media and other relevant stakeholders.
According to Thomas: “As regulators, we would continue to consolidate on the administration’s cardinal agenda of developing the market and fostering insurance inclusion along with mutual collaboration of the press and other relevant stakeholders.”
Thomas said the Commission will continue its execution of various regulatory and market development initiatives to uplift the insurance sector to global standard.
“This will be achieved through a 12-point laid down initiative that will focus on engaging stakeholders including state governments towards ensuring domestication of the laws to ensure compliance with compulsory insurances and improve the business of insurance in their respective states; driving the Market Development and Restructuring Initiative (MDRI) to promote compulsory insurance products; feasibility Assessment for Index Based Risk Transfer Solution in the agricultural sector; financial Inclusion Drive via focused Insurance awareness campaign for the financially excluded.”
“Other areas are, launch of the Insurtech Accelerator Platforms under the Insurance Market Development programme i.e Bimalab Programme in conjunction with FSD Africa; ongoing synergy with FSD Africa on developing a Risk Based Capital Model for the Nigerian Insurance Industry; promoting the development of products and business models that meet the needs of the financially excluded group; automation of the Commission’s processes; actuarial capacity development programme; risk based supervision regime; regional Integration and setting up of the insurance sector committee on African Continental Free Trade Area (AfCFTA) amongst others.”
“Stemming from the theme for this seminar, it is worth noting that insurance over the ages has always been seen as a business that exists for the survival of other businesses.”
“At this period of rejuvenation, it calls for the Nigerian insurance sector to develop innovative products and distribution channels, embark upon massive infrastructural development, improvement in social safety nets scheme, rejig business continuity plans and general deployment of technology to meet the expectation of today’s consumers and create new experiences that add value,” Thomas said.
Read also: Insurance industry’s gross premium income grows 65.6% in 5years
On importance of insurance, NAICOM boss said, “The insurance sector plays a vital role in financial inclusion because it reduces the poverty line, assist people to manage their risk and protect them from negative adverse effect of any unforeseeable circumstances as well as increases access to other financial services
“In today’s modern business environment, disruption plays an integral part of any business, hence innovation being implemented by the Commission is geared towards gaining control of a specific segment of the market that has been left untapped by encouraging the introduction of products tailored to the consumers in order to grow insurance businesses.”
This commitment comes as Africa continues to face irreversible loss and damage associated with global climate change impacts such as drought, flood and tropical cyclones.
With African nations being among the most exposed globally to the impacts of climate change and nature loss, Africa cannot continue to rely on international aid and developed world climate finance commitments to respond to climate catastrophes.
The ACRF will provide protection for the continent’s most vulnerable communities by providing $14 billion of climate risk insurance by 2030 to African sovereigns, cities, humanitarian organizations and NGOs.
At the same time, the Facility will include a donor-funded Trust Fund that provides premium subsidies, product development technical assistance and policyholder capacity building. The governance of the Trust Fund will be designed to allow swift response to opportunities.
Kelvin Massingham, Director Risk and Resilience, FSD Africa, said: “Mainstreaming resilience into Africa’s economic development is essential to secure future prosperity and sustainable growth. Now is the time for the African insurance sector to play the significant role it should in creating this resilience. The Nairobi Declaration on Sustainable Insurance’s proactive and market-based approach is exactly what we need, and the commitment today is a strong statement to work together to provide an African-led solution to loss and damage.”
Patty Karuihe-Martin, CEO Namib Re, commented: “Irreversible Loss or Damage refers to the calamitous impacts of climate change that cannot be circumvented by mitigation and adaptation alone. So apart from managing risk, crafting affordable risk transfer and risk sharing solutions through compliant, trusted and responsive Insurance and Reinsurance for such loss or damage for the developing countries is a crucial discussion; if not for unfailing and guaranteed resilience then at least to allow for decent work and dignified life to continue.”
Phillip Lopokoiyit, Group CEO, ICEA LION Group, added: “As private sector insurers, we have a key role to play in ensuring a sustainable future. Our priority lies in providing solutions that will support the resilience of our clients in light of the greatest challenge facing humanity. Coming together as signatories to support the set-up of the Africa Climate Risk Facility, will provide the necessary capacity needed by insurers to the solutions that will respond to climate risk.
“The commitment that we have made, as signatories, to underwrite $14 billion of cover for climate risks by 2030, will protect 1.4 billion people against floods, droughts, and tropical cyclones.This is indeed a testament of our quest to ensure that we contribute to the long term sustainability and economic resilience of our countries.“
Dr. Mahmoud Mohieldin, High Level Climate Champion
Hon. Bogolo J Kenewendo, Africa Director, High Level Climate Champions
Dorothy Maseke, Group Head of Risk and Compliance ICEA Lion Group
Kelvin Massingham, Director – Risk and Resilience – FSD Africa
Lesley Ndlovu, CEO – African Risk Capacity
Patty Karuihe-Martin, CEO – Namib Re
Philip Lopokoiyit, Group CEO – ICEA LION Group
Africa insurance industry to underwrite $14bn of cover for climate risks by 2030
9 November 2022, Sharm El Sheikh –The Nairobi Declaration on Sustainable Insurance (NDSI) signatories have today announced a first-ever financial commitment by the African insurance industry to underwrite $14 billion of cover for Africa’s climate risks by 2030.
The announcement was made at COP27 side event: “Leveraging the African insurance industry to create resilient African economies.” Moderated by Hon. Bogolo Kenewendo, Africa Director and Special Advisor, High-Level Climate Action Champions, the session highlighted the critical role of the African insurance industry in creating climate resilience for the continent.
This commitment comes as Africa continues to face irreversible loss and damage associated with global climate change impacts such as drought, flood and tropical cyclones. With African nations among the most exposed globally to the impacts of climate change and nature loss, Africa cannot continue to rely on international aid and developed world climate finance commitments to respond to climate catastrophes.
Local, market-based disaster risk finance solutions must be developed and scaled, including risk transfer solutions such as insurance, as these are critical tools in ensuring resilience. In particular, the leverage and immediate deployment of capital that insurance capital allows need to be further utilised.
It is in response to this that the 85+ NDSI signatories are announcing the creation of the African Climate Risk Facility, which will take a targeted approach to respond to climate risk. Through this facility they are committing to underwrite $14bn of cover for climate risks by 2030 to protect 1.4 billion people against floods, droughts, and tropical cyclones.
The Africa Climate Risk Facility is a mechanism that will scale private sector underwriting of climate disaster risk in Africa. It will facilitate the uptake of climate risk insurance by African sovereigns, cities humanitarian organisations and NGO’s to help African countries better manage the financial impacts of climate shocks and increase the resilience of the most vulnerable communities. The Facility will include a donor-funded Trust Fund that provides premium subsidies, product development technical assistance and policyholder capacity building. The governance of the Trust Fund will be designed to allow swift response to opportunities.
Kelvin Massingham, Director Risk and Resilience, FSD Africa said: “Mainstreaming resilience into Africa’s economic development is essential to secure future prosperity and sustainable growth. Now is the time for the African insurance sector to play the significant role it should in creating this resilience. The Nairobi Declaration on Sustainable Insurance’s proactive and market-based approach is exactly what we need, and the commitment today is a strong statement to work together to provide an African-led solution to loss and damage.”
Patty Karuihe-Martin, CEO Namib Re commented: “Irreversible Loss or Damage refers to the calamitous impacts of climate change that cannot be circumvented by mitigation and adaptation alone. So apart from managing risk, crafting affordable risk transfer and risk sharing solutions through compliant, trusted and responsive Insurance and Reinsurance for such loss or damage for the developing countries is a crucial discussion; if not for unfailing and guaranteed resilience then at least to allow for decent work and dignified life to continue.”
Phillip Lopokoiyit, Group CEO, ICEA LION Group said: “As private sector insurers, we have a key role to play in ensuring a sustainable future. Our priority lies in providing solutions that will support the resilience of our clients in light of the greatest challenge facing humanity. Coming together as signatories to support the set-up of the Africa Climate Risk Facility, will provide the necessary capacity needed by insurers to the solutions that will respond to climate risk. The commitment that we have made, as signatories, to underwrite $14 billion of cover for climate risks by 2030, will protect 1.4 billion people against floods, droughts, and tropical cyclones.This is indeed a testament of our quest to ensure that we contribute to the long term sustainability and economic resilience of our countries.“
About the Nairobi Declaration on Sustainable Insurance:
Launched in April 2021, The Nairobi Declaration on Sustainable Insurance is the declaration of commitment by African insurance industry leaders to support the achievement of the UN Sustainable Development Goals (UN SDGs). Accredited by the United Nations Environment Programme, Principles for Sustainable Insurance (UNEP PSI) and with over 85 signatories, it is promoting action by the African insurance sector towards sustainability goals.
This Africa focussed initiative was designed to encourage and support the African insurance market players to commit to sustainable insurance practices. It is also a convening platform for a united African voice on the global stage on climate change issues affecting the continent and the insurance sector.
The Nairobi Declaration on Sustainable Insurance is an alliance of senior leaders in Africa’s insurance ecosystem who are committed to accelerate solutions to major sustainability challenges – ranging from climate change and ecosystem degradation to poverty and social inequality – particularly in a post-Covid-19 world.
To date, more than 85 insurers, reinsurers and brokers have signed the Declaration and committed to the five key areas including risk management; insurance; investment; policy, regulatory and industry engagement; and sustainable insurance thinking and practices.
Comes as COP27 talks focus on issue of loss & damage
African Climate Risk Facility to cover 1.4 bln people
SHARM EL-SHEIKH, Nov 9 (Reuters) – A group of over 85 insurers in Africa has pledged to create a financing facility to provide $14 billion of cover to help the continent’s most vulnerable communities deal with climate disaster risks such as floods and droughts.
The commitment to create the African Climate Risk Facility (ACRF) was made on Wednesday during the COP27 climate talks comes as developing countries push their richer peers to do more to help them pay for the costs of responding to such events.
Demand for compensation for the “loss and damage” caused by global warming has long been rejected by wealthy countries, whose leaders are wary of accepting liability for the emissions driving climate change.
Africa, which accounts for less than 4% of greenhouse gas emissions, has long been expected to be severely impacted by climate change.
Against that backdrop, the African insurance plan is based around creating a scalable, local market-based funding tool to help countries better manage the financial risk of climate shocks and increase the resilience of its more vulnerable communities, the group said in a statement.
“This is the African insurance industry saying let’s come together and try and solve this ourselves,” said Kelvin Massingham, director risk and resilience at FSD Africa, one of the partners behind the launch.
“We have a massive risk gap in Africa and existing solutions aren’t working,” Massingham said. FSD Africa is a UK government-backed development group.
The ACRF will provide protection for 1.4 billion people against floods, droughts and tropical cyclones by providing $14 billion of climate risk insurance by 2030 to African sovereigns, cities, humanitarian organisations and NGOs, the insurers said.
The group is calling for $900 million in funding from development partners and philanthropies to support the project, much of which will go towards providing a subsidy on the cost of the premium to help governments and cities with limited fiscal resources buy the cover.
These donor funds will be held in a trust and managed by the African Development Bank.
“The facility will enable us to cover certain risks like floods, cyclones and droughts…and to help us mitigate the risks we face as underwriters dealing with these climate risks,” said Philip Lopokoiyit, chief executive at Nairobi-based insurer ICEA LION Group.
The insurance commitment is the first from the 85 signatories of the Nairobi Declaration on Sustainable Insurance, signed in April 2021 by the industry to support the U.N. Sustainable Development Goals.
The ACRF will provide a domestically funded alternative to global initiatives like the World Bank’s Global Risk Financing Facility and the Global Shield Financing Facility, a new funding facility that will help countries that suffer heavy economic loss due to climate change-driven disasters, announced by World Bank president David Malpass on Tuesday.
This report sketches an insurance innovation portrait for Ethiopia. It forms part of an eight-country study to determine what regulators can do to unlock innovation at scale and meet key insurance needs in sub-Saharan Africa.
Sector expansion and development defined by 1990s liberalisation. The insurance sector in Ethiopia has been shaped by the financial sector liberalisation and market reforms that took place in the early 1990s. These reforms dismantled the state-driven monopoly, opened the market for privately owned insurance companies to enter, and encouraged assistance from international development donors to support the growth of the insurance sector. As of 2021, the insurance market comprises 18 insurance providers, including a reinsurance company, and caters for an estimated 1.2 million insurance policyholders (Stakeholder consultations, 2022)[1].
Insurance sector remaining underdeveloped with limited retail reach. While market liberalisation prompted enhanced competition, this has yet to translate into broader and deeper access to insurance. Ethiopia continues to have one of the smallest insurance markets in SSA in terms of penetration rates, with premiums largely concentrated in general insurance and primarily driven by compulsory lines such as third-party motor vehicle insurance. While life business in Ethiopia holds about 5% of the market share, this figure is relatively miniscule compared to non-life business, thus signalling an underdeveloped voluntary retail market. With historically underserved segments such as farmers and MSMEs still without insurance, a clear need continues to exist for significant and accelerated market development to take place in Ethiopia.
Limited innovation observed beyond donor-led pilots. The low uptake of formal insurance, yet popular use of informal risk-pooling mechanisms such as edirs, suggests latent consumer demand that could be tapped through value-driven market innovation. However, while a few product innovations have been developed, these have not been successful at better serving the excluded. For example: international donors have entered into partnerships with incumbent insurers to pilot agriculture index-based insurance to cover farmer risks, but capacity constraints have undermined long-term sustainability. Furthermore, while insurance players are working to digitalise their service offerings and to partner with alternative distribution partners like MNOs, limited success has been observed to date due to the high level of risk aversion and weak capacity of Ethiopian insurers.
An increasingly enabling environment but with constraints remaining. The big innovation gaps left in the market suggest room for incumbents, new entrants and insurtechs to better serve Ethiopian individuals and businesses to increase insurance uptake. Yet, an assessment of the innovation-enabling ecosystem shows that, while some factors bode well for innovation, key elements continue to constrain market development:
Expanding and increasingly competitive payment and ICT sectors, respectively, provide scope for more efficient and alternative distribution channels, such as via mobile money; but poor electricity access and reliability exacerbate weak digital connectedness, thereby hampering the scope for viable insurance distribution through digital channels.
Severe skills shortages prevail in terms of both insurance-specific skills (e.g. actuarial skills) and basic STEM qualifications, despite numerous state initiatives. While the local start-up ecosystem is expanding, a focus on insurtech development remains to be seen.
Insurtechs struggle to outcompete paytechs for seed capital, while incumbent players lack financial resources to invest in product development due to conservative boards, weak access to capital and the unavailability of requisite skills.
There is a strong demand for informal risk mitigation tools, but low trust, limited awareness and low incomes limit uptake of formal insurance.
Alternative distribution channels, such as MNOs, are yet to be explored, while others remain inaccessible due to regulatory barriers such as constraints on bancassurance.
The regulatory framework does not yet provide clear guidance regarding digitalised insurance, microinsurance and leveraging alternative distribution channels. More broadly, the remaining restrictions on foreign participation limit the scope for innovation.
While the Insurance Supervisory Directorate (ISD) supports market development, its lack of independence from the National Bank of Ethiopia hinders its ability to prioritise innovation, adjust supervisory frameworks for greater flexibility and engage more proactively with market players.
[1] This figure does not include community health insurance policyholders.
