Insurance policies targeted at losses occasioned by climate risks such as drought, flooding and extreme heat present the next growth opportunity for Kenya’s under-performing insurance sector, experts say.
Industry insiders say the industry is looking at developing products that include covers against the increasing climate change-related risks to public infrastructure, farming, healthcare, energy, tourism and forestry.
Despite producing less than five percent of carbon gas emissions – the least in the world – African countries including Kenya, are most vulnerable to climate instabilities such as droughts, floods, rising sea-levels and increasing temperatures.
That presents a growth opportunity for insurance firms in a country where penetration has fallen below 2.5 percent of the gross domestic product, according to insurance broker Minet Kenya.
“Many of our risk ratings have not factored in climate change. Yet today, in places where there was never a flood before, you will find that a flood that has swept away a road, a bridge or a rail,” Minet Kenya Managing Director Sammy Muthui said in an interview.
“We also have to start looking at medical schemes relative to climate change because there will be increased risks of some diseases from air pollution, rising temperature, floods and drought.”
The developments have come at a time the world is battling extreme weather conditions such as shortage of fresh water, rising temperatures as well as extinction of plant and animals species which are linked to greenhouse gas emissions largely by developed countries.
UK government-backed Financial Sector Deepening (FSD) Africa has singled out insurance sector as key in helping Kenya mitigate and adapt to risks associated to climate change in Kenya.
“As underwriters, insurers play an essential role in facilitating the flow of capital to mitigation projects through providing de-risking solutions to investors. For example, in the geothermal energy sector in East Africa, where capital intensive early-stage development drilling has a low probability/high severity risk profile, investors need risk transfer solutions to make the risk-return profile attractive,” FSD Africa wrote in a July 2021 article on its website.
“To address this barrier, FSD Africa is working on setting up a local underwriting pool that will provide de-risking solutions to enable the crowding-in of private capital to this important renewable energy source.”
Climate risk financing and implementing Environmental Social and Governance (ESG) standards for insurers was the main topic when industry regulators, insurers, re-insures, brokers and agents on the continent met late June in Nairobi.