Development in Africa: what role does insurance play?

July 13, 2015

Africa needs clear solutions to address the issues of climate change, aging infrastructure and energy poverty. 

Karsten Löffler, Managing Director Allianz Climate Solutions, talks with Delphine Maidou, CEO AGCS Africa, who is attending this week’s UN Financing for Development Conference in Addis Ababa, on development issues in Africa and the role of private sector financing.


Karsten Löffler: Delphine, this week’s UN Financing for Development conference in Addis Ababa is also closely watched as a stepping stone on the road to the Paris climate summit. The finance question (i.e. mobilizing USD 100 billion per year until 2020 to support low-carbon and climate resilient projects in developing countries) is considered crucial to gain the support of developing countries for a successful climate agreement. What are your expectations for this week on North-to-South finance?

Delphine Maidou: My expectations are not great this week, in particular as there is still a lot to be done before the Paris summit. Right now, if you ask five people about the purpose of this USD 100bn commitment, you will get five different answers. Some of the major economies in the West may make financing announcements to show their support in anticipation for the Paris meetings. 

However, let’s keep in mind that whatever is committed by the public sector will not be enough. The private sector will need to be brought in. The lack of bankable projects is also a major concern in the low-carbon space. The role insurance can play in this whole process will be essential: more investment in projects will also mean that investors need to protect the assets they are investing in while also making sure that the risk management that surrounds these projects is sound.

Delphine Maidou is Chief Executive Officer of Allianz Global Corporate & Specialty Africa.
Delphine Maidou is Chief Executive Officer of Allianz Global Corporate & Specialty Africa.

The reality is that over 620 million sub-Saharan Africans still lack basic access to electricity. How can insurance help Africa to both address energy poverty and to shelter its population from the effects of climate change?

As an insurer we always have to be where our clients are. AGCS leads the insurance program of the largest power company in Africa as well as many other power companies across Africa, so we have quite a close view on the power challenges that face the continent. Power stations are old and need a major upgrade, but financial resources are scarce. We provide risk management support and guidance to many of the power companies, as well as insurance for new power station projects and renewable energy projects – provided that the underlying technology has a market track record.

Insurance can also provide financial protection in the aftermath of natural or man-made disasters. For example, a farmer who loses his crop as a result of a prolonged drought won’t be able to purchase seeds for the next harvest, to feed his family, or to send his kids to school and might have to deplete other resources, e.g. by selling livestock. If he can recover part of the lost revenue, he might be able to take more risks and expand production in good years. That example applies for any business.

Karsten Loeffler is Managing Director of Allianz Climate Solutions.
Karsten Loeffler is Managing Director of Allianz Climate Solutions.

At the G7 summit, heads of state supported the upscaling of climate risk insurance for the poorest and the most vulnerable – expanding insurance cover to an additional 400 million people, presumably in developing countries. You will be attending a meeting at the margins of the UN conference this Wednesday where you’ll exchange views with governments on this mechanism. Can you explain how insurance can help offset the impacts of climate change?

Insurance can help economies recover more rapidly from extreme weather events, and insurers can share expertise, data and early alerts to help prevent major damage. A recent study by the Bank for International Settlement looked at such events over the past 50 years in 200 countries and found that a typical disaster could reduce growth permanently by almost 2%. However, countries with good insurance cover fared a lot better, with only small medium-term effects.

There are successful examples of government-led insurance schemes. For instance, the African Risk Capacity supports African Union countries in better responding to floods and droughts. However, the insurance gap is still huge on the continent and will require a joint effort from the private sector, governments and development agencies – the G7 initiative is a move in the right direction. 


What about your customers? Is climate change on their agenda?

Climate change is the number one long-term business risk for industrial customers according to the most recent Allianz Risk Barometer [a survey which compiles the concerns of over 500 corporate risk managers and insurance experts from more than 40 countries]. 

Business interruption and supply chain losses already account for around 50-70% of all insured property losses, up to as much as USD 26 bn per year (2013 figures). Manufacturing companies faced major disruptions after the floods in Thailand in 2011, bringing the automotive industry in Germany, as well as IT giants in the US to a temporary stop. Infrastructure and businesses in emerging economies are key components of the global economy and will be first impacted by climate change. How to enhance their “resilience” will probably be one of the buzzwords at the conference this week. 


What are the barriers to rolling out insurance in Africa?

Probably not very different from the barriers in other emerging economies. There is very simply a lack of experience with the concept and benefits of insurance. Luckily, this is changing as financial systems become more sophisticated, corporates deploy better risk management and private insurance customers become more familiar with the products. Progress is slower on the regulatory side, threatening market stability and customer trust in some regions. Lastly, affordability can be an issue, but we are getting better in tailoring our products to country-specific needs and circumstances. 


Let me conclude with a more personal question: what does it take to be a (female) business leader in Africa?

It's is key to remain true to who you are. Without integrity and a strong character to sustain you in the sometimes very ambiguous business environment, you are bound to fail. This applies whether you are a man or a woman in Africa. As a woman though it is important to keep your femininity and all that comes with it. As women we have a different sense of business than men. This is why diversity is essential. Together we are better.

This could be interesting for you

Infrastructure crisis: 14 investments the world must make

From water supply to healthcare, 14 pillars of critical infrastructure requiring urgent attention, according to OECD research 

7 ways the G7 surprised us all

The G7 summit makes strong commitments towards the future.

Will pricing Mother Nature preserve or destroy her?

On the occasion of Earth Day, explore the heated arguments for and against valuing the environment in financial terms.