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Insurance risk information can drive climate adaptation in sub-Saharan Africa




April 23, 2020


The insurance industry does not have large market penetration in sub-Saharan Africa. But this sector is in the business of quantifying risk, drawing on historical records to develop catastrophe models, which it uses to design insurance products.

How can this kind of climate risk information, generated by the insurance sector, help with planning and development decisions in sub-Saharan Africa so that the region can better prepare for the approaching risks associated with increasing global temperatures and climate change?

This question is central to a recent analysis by the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and the Centre for Climate Change Economics and Policy (CCCEP). A report of their findings, published in October 2019, concludes that the insurance industry can play a ‘catalysing’ role for governments in their climate risk planning. The researchers also maintain that there is potential for planners, property developers, investors, and even farmers and individuals to benefit from a symbiotic use and generation of climate risk information.

In order for this symbiosis to happen, though, there needs to be greater trust between sectors, and capacity building within African institutions to better understand and interpret climate risk information.

‘The main purpose of insurance-related risk information is to serve the industry in their understanding and pricing of risks, but there is also the possibility that the use of insurance can instill a risk perspective into planning and decision-making processes, particularly at government level,’ argue the study’s authors Dr Swenja Surminski, Jonathan Barnes and Dr Katharine Vincent.

The insurance sector usually draws up its risk analysis from information obtained from observations, models, datasets and forecasting tools, which can then be used beyond its insurance products, and can help inform risk-based planning and decision-making.

Anticipating climate risk using this kind of analysis can help prepare for loss prevention and adaptation. In an urban context, it can support decision-making relating to building practices and infrastructure, and in an agricultural context it can influence the choice of crop and timing of planting.

‘The study looks at three case studies in sub-Saharan Africa, in South Africa, Malawi, and Tanzania, so that we can propose an analytical framework for how climate risk information can be used for development planning in the region in future, and why it’s not happening now,’ explains Vincent, who worked with UMFULA on this research.

The researchers find that countries with low insurance penetration often have limited experience in risk-based planning and that there is a shortage of adequate risk information. Many governments also do not have the skills and expertise to integrate it into their decision-making processes.

‘This suggests that risk information sharing could be an entry point, where the knowledge and expertise of the insurance industry is used to build risk management and planning capacity prior to any transactional activities developed by or at the request of insurers, which might be more widely used for social benefits beyond insurance, particularly with regards to reducing current and future risks through risk-based planning and decision making.’

Read the full report: Insurance as a catalyst for government climate planning? A framework for analysing drivers and barriers, tested against evidence emerging from Sub-Saharan Africa.

The work reported on in this story is part of the Uncertainty Reduction in Models for Understanding Development Applications (UMFULA) project within FCFA which aims to support decision-makers in the water, energy and agriculture sectors to integrate climate information in their medium term (5-40 year) planning decisions in central and southern Africa.

This article was written by Leonie Joubert as part of a series that covers the science produced by various FCFA projects, and introduces some of the people behind it.