Index-based insurance at point of take-off

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Index-based insurance could be at the point of taking off, according to Jonathan Dixon, chair of the International Association of Insurance Supervisors (IAIS) regional committee for Sub-Saharan Africa.

Speaking in the wake of the tenth Consultative Forum (CF10), which focused on ‘Scaling up agricultural index insurance in Africa: Building disaster resilience of smallholder farmers’, he said: “We are seeing promising developments that could enable index-based insurance to really take off. These include innovations in business models, advancements in technology, the development of proportionate regulations in areas such as distribution (which is critical in agricultural insurance given its long value chain), and growing support from other policymakers, with pilots being subsidised and supported.”

Co-organised by the African Insurance Organisation (AIO), the IAIS, the Microinsurance Network and the Access to Insurance Initiative (A2ii), the event gathered more than 90 high-ranking representatives from the insurance industry, supervisory authorities and the public sector, from 29 different countries.

Hannah Grant, head of secretariat for A2ii, explained that the different role of the insurance supervisor in micro-, meso- and macro-agricultural insurance programmes needs to be considered when drafting index insurance regulations.

“At the micro and meso levels, individual policyholders are more vulnerable to abuse and the potential for reputational damage for the sector is much higher,” she explained. This is one of the issues being discussed by the IAIS drafting group on index-based insurance, which is currently working on a supervisory guidance note on the topic.

The event also included a workshop on ‘preparing and assessing an agricultural index product proposal’. Practical examples to help inform the discussion were provided by industry practitioners as well as Kenya’s Insurance Regulatory Authority. The workshop focused on achieving sustainability, ensuring client value and managing risk in the product design, distribution and marketing of agricultural index insurance.

Discussions centred on striking the right balance between small, frequent payouts, which contribute to positive consumer perceptions and create trust, and affordability of premiums and sustainability of programmes. In addition, the need for greater regulatory flexibility with regards to allowing client aggregators such as agricultural input providers to distribute the product came to the forefront. Finally, there is a need for better data collection and more research on the most appropriate indicators to measure risk, viability and client value.

“Of particular interest were discussions around the bundling of index insurance with other products of value to the farmer, the development of a multi-peril index insurance that includes agricultural and medical insurance, as well as the offering of insurance to multiple players along the value chain, for example for the agricultural input providers as well as the farmers,” said Annette Houtekamer-van Dam, microinsurance expert at the Microinsurance Network.

“The Forum highlighted that one of the key success factors for scaling up agricultural insurance is the establishment of strategic partnerships, where all stakeholders in the value chain get value from their involvement,” she concluded.

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