By Ann Weru
Nairobi – Improved access to insurance can boost the resilience of vulnerable communities to recurrent disasters such as droughts and floods in Sub-Saharan Africa.
“Insurance needs to be recognized as an integral tool in reducing poverty as it protects those with low incomes against specific perils that are insured,” said Nelson Kuria, board member of the International Co-operative and Mutual Insurance Federation (ICMIF) and former Chief Executive Officer of the CIC Insurance Group – Kenya.
Disasters often sink low-income communities deeper into poverty.
In parts of northern Kenya, where pastoralism is the predominant source of livelihood, recurrent droughts have decimated livestock and increased economic hardship as families have little time to replenish their herds before the next disaster strikes.
The Sendai Framework for Disaster Risk Reduction, a 15-year global roadmap adopted in March, aims to curb disaster mortality and losses substantially. It highlights the importance of an inclusive approach and the roles of public and private stakeholders alike.
The provision of insurance products is one of the ways through which the public and private sectors can help to reduce vulnerability and its debilitating consequences and empower communities.
According to a report released last month by the Cambridge Institute for Sustainability Leadership, insurance systems, whether public, private or mutual, “have the capacity to protect the basic human rights to life, livelihood and shelter”. They do so by providing policyholders with financial protection, as well as “influencing risk reduction and resilience through the conditions and incentives of insurance contracts, and enabling financial inclusion, access to credit and creating deeper reserves of investment capital at individual and collective levels”.
However, access to insurance is low in Africa.
According to Swiss Re’s 2012 global insurance report, the insurance penetration ratio in Africa was 3.65 percent overall, against a global average of 6.5 percent. Excluding South Africa, which has a ratio of 14.2 percent, the figure for the rest of Africa fell to just 1.04 percent. Insurance penetration ratio refers to the gross value of insurance premiums as a percentage of Gross Domestic Product.
The sector needs to find ways to cover the needs of excluded groups, said Sabbir Patel, the ICMIF’s Senior Vice-President of Emerging Markets, and starting small is one way.
“We believe that micro-insurance is an effective tool for protecting the assets of the poor. It also creates a culture of understanding risk. It provides a cushion against the smaller shocks and enables a share-out of the cost of the larger shocks,” he said.
Micro-insurance is highly underdeveloped, however, because commercial insurers have not considered low-income groups as being viable sources of business, according to the ICMIF.
Other hurdles have included high transaction costs, low client retention, a lack of infrastructure, and a general mistrust of insurance companies, with potential customers questioning the point of paying premiums when priorities lie elsewhere.
“For some people, the choice can be between eating or paying,” said Mr. Patel. “The answer there is community-based insurance. And education on the value of what protection actually means.
In Africa, insurers are therefore working through cooperative societies.
“Cooperative insurers, through their close links with agricultural, consumer, credit and savings cooperatives, are best placed to understand and identify the needs of their customers and communities,” explained Mr. Kuria. The cooperative structure also makes it easier to win members’ trust.
The cooperatives serve as insurance points of distribution. The model has been replicated in parts of Malawi, South Sudan and Uganda.
According to the 2013 Global Mutual Market Share report, premium income for the world’s mutual and cooperative insurers grew by 28 percent compared to 12 percent for the insurance market as a whole between 2007 and 2013.
“We must see insurance as a way of giving people practical solutions to transform and improve their lives,” said Mr. Kuria.