Broader range of insurance products will prepare Africa for climate crisis: Africa Specialty Risks
A broader range of insurance products, such as parametric insurance, can help Africa prepare for the devastating impacts of climate change, according to Mikir Shah, chief executive officer at Africa Specialty Risks (ASR).
While Africa makes a minimal contribution to global emissions, it is particularly vulnerable to the effects of climate change, ASR said. Temperatures in North and Sub-Saharan Africa are expected to rise by as much as 3.5C from pre-industrial levels by 2050, which will be devastating in a continent whose economy remains heavily reliant on agriculture.
Shah cited parametric insurance as an example of the kind of product that could make a significant difference to African farmers looking to mitigate unpredictable external risks.
Africa’s insurance market is poised for rapid expansion, and will be second only to Latin America for the fastest growth in the world, ASR noted. With 7 percent year-on-year growth, Africa’s insurance market is growing nearly twice as fast as North America’s and over three times faster than Europe’s. However, this rapid growth starts from an extremely low baseline, with Africa remaining severely underinsured.
Shah described Africa as “one of the last real growth markets,” but warned the coverage available remains limited compared to what is on offer in Western markets.
Africa’s insurance market has historically been fragmented and dominated by a number of regional and local insurers, which Shah noted tend to have small balance sheets, and a focus on retail and SME markets.
That means options for corporate and specialty risks are more limited. Filling that coverage gap would be a significant step towards unlocking investment across Africa, ASR said.
ASR’s mandate is “focused on Africa and to deliver what those investing in Africa need in terms of risk mitigation”. ASR’s teams work with local insurers, providing training and leveraging its technical abilities to insure against complicated local risks.
Shah said ASR’s technical skills can complement and enhance local stakeholder capabilities to provide localised risk insurance that can provide “real comfort to international investors and corporates.”
Credit and currency risks have long been seen by investors as a barrier to entry for African markets. Fluctuating exchange rates threaten returns and exits while political instability makes for challenging operational climates. Investors and businesses “need to know that assets won’t be taken away or whittled down to zero,” Shah said, before they will commit investment in Africa.
ASR was founded in 2020 with support from Helios Fund IV.
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