Industrial agriculture is no solution for Africa

By Babajide Komolafe

Insurance companies in Nigeria and Africa now have the opportunity to acquire capacity for underwriting agric business and support food security in the continent following a partnership deal between Africa Reinsurance Corporation (Africa Re) and the International Finance Corporation (IFC), a member of the World Bank Group.

In order to address the challenges depriving African insurance firms from participating in agric space, the IFC’s Global Index Insurance Facility (GIIF) therefore set up an experience account whereby the loss ratios of the net account for local risk carriers would be capped at 75 percent and the excess loss amounts transferred to the Global Index Insurance experience account, with Africa Re as the fund administrator.

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Ken Aghoghovbia, Deputy Managing Director/Chief Operating Officer, Africa Re said IFC/GIIF fund, which Africa Re manages on behalf of the agriculture industry stakeholders aligns well with its mission statement of fostering the development of insurance and reinsurance industry in Africa.

The GIIF is a multi-donor program managed by the World Bank Group created to address the scarcity of affordable insurance protection against weather and catastrophic risks in emerging countries.

GIIF is supported by the European Commission, the African, Caribbean and Pacific (ACP) Group of States, the Netherlands Ministry of Foreign Affairs, the German Federal Ministry of Economic Cooperation and Development (BMZ), and the Japan Ministry of Finance.

The pilot phase of the experience account was set up in 2017 for a 3-year period to end in December 2020, with $900,000 fund covering Nigeria and Zambia and was intended to support the development of weather and area yield index insurance programs in these countries.

During the last three years, the experience account fund has been triggered twice with two risk carriers, Mayfair Insurance Company (Zambia) and AXA Mansard Plc (Nigeria) benefiting in 2019 from the fund following various flood losses that impacted their net account portfolios.

While in 2020, the Nigeria market was again hit by flood losses that affected 8 local risk carriers on the CBN Area Yield Index Anchor Borrowers Program (Wet Season) for rice, maize and cotton crops. The total market gross claim was N1.996 billion, approximately $5 million and the local insurers that covered the risk include Veritas Capital, Leadway Assurance, AIICO Insurance, AXA Mansard Insurance Plc and Royal Exchange Insurance Plc.

Africa Re on its own paid about $1.5 million to the lead insurer as their reinsurance share of the claim and has handed out a total of $827,000 to the local risk carriers from the IFC’s GIIF experience account fund.

This initiative would certainly go a long way in moving Nigeria towards its goal of food security in line with Africa-Re’s mission to support African economic development, Ken Aghoghovbia, DMD/COO, Africa Reinsurance Corporation said.

An intervention by Africa Reinsurance Corporation (Africa Re) and IFC, a member of the World Bank Group to support African insurers provide risk solution to small holder farmers is beginning to yield result in Nigeria, Aghoghobvia said.

The African agriculture insurance market has encountered several challenges that have resulted in the very low penetration levels of this class over the years. Initially, indemnity based products were a common feature. However, these products became riddled with high costs of administration and the inherent fraud risks made it difficult for underwriters to implement. Thus a parametric solution was sought, specifically to encourage the small holder farmers access to insurance at affordable terms. This solution is currently being adopted in many African markets.

Unfortunately, the parametric solution is also encountering many challenges in its implementation. These include high premium rates, high volatility of net account results for risk carriers, low institutional capacity and limited reinsurance capacity.

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