World Bank Group’s Global Index Insurance Facility (GIIF) and the African Reinsurance Corporation (Africa Re) have entered into an agreement to carry out a risk-sharing facility, in form of an experience account, to decrease premium levels for insured farmers and encourage local companies to create affordable insurance products. This was reported by the World Bank in February 2017.
The project is expected to serve as a model to further incentivise other local insurers and regional reinsurers to enter into similar risk-sharing agreements. This will ensure the continuation and expansion of index insurance as a risk-management tool that will enable smallholder farmers to build resilience against the impact of climate change.
Under the project, the facility will reimburse the insurers who experience more than a 75 percent annual loss ratio, thereby decreasing the cost borne by primary insurers. As a result, insured farmers will benefit from lower premium prices and receive payouts faster because of a pre-agreed pricing rule which allows local insurance companies to process claims faster.
With their loss ratios kept at 75 percent, local insurers and reinsurers will be encouraged to invest in their capacity building and expand their agriculture insurance books. The more people with the right technical skills and regional experience, the greater the number of innovative products will be available to ensure access to finance to African farmers.
About Global Index Insurance Facility:
The Global Index Insurance Facility (GIIF) is a multi-donor trust fund that works to provide access to finance by smallholder farmers, microentrepreneurs and microfinance institutions through the development and growth of local markets for indexed/catastrophic insurance in developing coun-tries. Supported by the EC; the African, Caribbean and Pacific (ACP) Group of States; Governments of the Netherlands and Japan, the facility is part of the World Bank Group’s Finance & Markets Global Practice. GIIF has facilitated approximately 1.5 million contracts that cover over 6 million individuals. For more information, visit www.indexinsuranceforum.org.
About Africa Reinsurance Corporation:
Established in 1976 by 36 member States of the African Union and the African Development Bank Group (AfDB), The African Reinsurance Corporation (AFRICA RE), the leading reinsurance compa-ny in Africa and the Middle East, is a pan-African financial institution with diplomatic status in its current 41 African member countries. The purpose of Africa Re is to foster the development of the insurance and re-insurance industry in Africa, to promote the growth of the national, regional and sub-regional underwriting capacities and to support African economic development. For more information, visit www.africa-re.com
(The World Bank/ile)