The World Bank Group’s Global Index Insurance Facility (GIIF) and African Reinsurance Corporation (Africa Re) have entered into an agreement to carry out a risk-sharing facility, in form of an experience account, to decrease premium levels for insured farmers and encourage local companies to create affordable insurance products.
“Agriculture provides up to 60 percent of all jobs on the continent, but African farmers need greater access to insurance mechanisms to develop resilience to external shocks and protect their livelihoods,” said Makhtar Diop, World Bank Vice President for Africa.
The project is expected to serve as a model to further incentivize other local insurers and regional reinsurers to enter into similar risk-sharing agreements. This will ensure the continuation and expansion of index insurance as a risk management tool that will enable smallholder farmers to build resilience against the impact of climate change, according to the World Bank.
“It is the poor and vulnerable who are the most affected by climate change and natural disasters, and insurance is a critical tool to help protect their livelihoods. The large and complex nature of climate change requires us to work closely with our partners, such as Africa Re, to provide access to finance to those communities that need it the most,” said Alejandro Alvarez de la Campa, Practice Manager, Finance and Markets Global Practice, the World Bank Group.
“We are excited about the prospect of this innovative solution to give more confidence to African insurers who wish to underwrite the agriculture class of business. It would enhance the development of agriculture and reach out to farmers, who represent over 60 percent of the labor force in sub-Saharan Africa, within the next decade,” said Africa Re General Managing Director and CEO Corneille Karekezi.
Under the project, the facility will reimburse the insurers who experience more than a 75 percent annual loss ratio, thereby decreasing the cost borne by primary insurers. As a result, insured farmers will benefit from lower premium prices and receive payouts faster because of a pre-agreed pricing rule which allows local insurance companies to process claims faster.
With their loss ratios kept at 75 percent, local insurers and reinsurers will be encouraged to invest in their capacity building and expand their agriculture insurance books. The more people with the right technical skills and regional experience, the greater the number of innovative products will be available to ensure access to finance to African farmers.