Insurance Industry can help Africa manage negative effects of climate change

Africa has for a long time borne the brunt of negative effects of climate change; phenomenon such as failing rains, floods, drought and many others have caused a lot of grief and damaged many African economies through loss of crops and property.

Further very few African countries have been able to initiate projects that can tap into the vast amount of funds available in carbon trading let alone teach its citizenry.

With the ever increasing magnitude of climate change related disaster such as floods, mudslides, persistent drought it seems at some point private insurance companies might be overwhelmed.

That notwithstanding private insurance has a significant role to play in emerging challenges of reducing exposure In Agriculture, manufacturing and other vulnerable sectors by developing innovative solutions.

Improvement in technology and harnessing of big data provides the insurance industry with raw material to introduce innovative products that would entice farmers, SMEs and local governments to take efforts that in totality builds resilience of the African society.

To accurately price climate risk; insurance industry must invest in aggregation of quality data.

For instance insurance companies can use development in GPS and geospatial science to help in building their differentiation strategy to farmers in different locations who have differing risk exposure.

Insurance companies will have to adopt individual customized insurance or lose out on the low-risk insurance clients they currently are serving.  Low-risk customers will seek insurers that recognize their risk levels and lower their premiums.

Insurance companies can individualize pricing by offering special discounts to farmers who take initiative to mitigate against failing rains therefore lowering their risk rating and payable premiums.

Premiums discounts incentivize resilience measures, which can help prevent property loss in the first place.  By investing in these mitigation measures; farmers can lower their premiums because they have reduced the risk that their farms face.

The insurance company benefits because insured farmers are less likely to file a claim in the event of a drought if the premium owner has been incentivized to invest in resilience precautions.

When implemented on a large scale, these policies can play a significant role in mitigating the potential damage inflicted by climate change.