AAAP in the Media
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Insurance Technical Support to Africa Adaptation Acceleration Programme (AAAP)
Countries in the Horn of Africa (HoA) are vulnerable to climatic shocks and their impact can have a devastating effect on agricultural production. The most vulnerable regions are arid and semi-arid areas that receive low rainfall and depend on pastoralism as the main economic activity. Elevated levels of food insecurity and conflict resulting from increased competition for pasture and water among pastoral communities is a concern for governments of HoA countries.
Strategies for increasing resilience need to be customized to different sub-regions and microclimates. Initiated in 2019, The Horn of Africa Initiative brings together 6 countries – Djibouti, Kenya, Ethiopia, Eritrea, Somalia and Sudan – to deepen economic integration and promote regional cooperation. The countries agreed that regional cooperation and economic integration should remain key to the overall recovery efforts of the sub-region.
The project described here focused on “Identifying Climate-Smart Digital Opportunities with Scaling Potential under the Horn of Africa Initiative”.
The findings in this report will contribute towards achieving the objectives of the HoA programme, which include:
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Strengthening the resilience of pastoral and agro-pastoral production systems to climate change
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Enhancing agribusiness and enterprise across value chains
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Strengthening climate services and applications for enhanced adaptive capacity
This report was intended to contribute to the project design by ensuring that activities supporting investments under the HoA programme maximize complementarity around the application of digital technology to ensure efficiency, quality and real-time exchange of data, advisories and related services.
The report was also designed to produce a number of recommendations towards the identification of climate-smart digital opportunities; for example, the importance of establishing strong coordination mechanisms to implement digital solutions at a regional scale.
An in-depth understanding of the existing climate-smart digital opportunities with scaling potential under the HoA Initiative, including (but not limited to):
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Emerging insurance innovations
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Mainstreaming digital solutions to climate risk finance into country programmes
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Application of digital technology to solve challenges in delivering agricultural insurance
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Critical success factors for a successful regional drought insurance scheme
The output of this report advances the objectives of the Africa Adaptation Acceleration Programme (AAAP) of GCA and the African Development Bank, which was developed to help implement the vision of the Africa Union’s Adaptation Initiative. To accelerate adaptation, the AAAP will use a triple-win approach and implement climate resilience activities that address COVID-19, climate change and the economy. AAAP intends to mobilize over US$25 billion to support adaptation between 2020–2025.
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Inclusive Insurance for Smallholder Farmers in Africa
Rising average temperatures, longer heat waves, more extreme precipitation events and locust invasions are just some of the adverse effects of climate change that will impact agriculture in Africa. Climate change is expected to cause a decrease in crop productivity due to increased heat and drought. Some crops are likely to be particularly at risk, such as cotton in Côte d'Ivoire or Ghana. This phenomenon will directly impact the population, with greater consequences for the most vulnerable famers.
In the face of rising climate risk across Africa, insurance is a key adaptation measure to strengthen food security and ensure climate resilience. However, the agricultural insurance market is nascent, particularly in sub-Saharan Africa, where less than 3% of farmers are protected.
The underdevelopment of agricultural insurance in Africa is due to a variety of factors, including the lack of organization in local value chains, the low profitability potential of programmes, and a general lack of financial resources and knowledge about insurance. Also, farmers do not consider agricultural insurance to be a priority.
The key aim of the landscape study on Inclusive Insurance for Smallholder Farmers in Africa was to clarify the pathway for the Global Center on Adaptation (GCA) to enter the agriculture insurance market in Africa. The study will contribute to defining the insurance toolkit included in the Smallholder Adaptation Accelerator (SAA) from the Climate Smart Digital Agriculture Pillar of the Africa Adaptation Acceleration Program (AAAP), a joint programme in cooperation with the African Development Bank (AfDB).
The landscape study, completed in December 2021, describes the current state of the agricultural insurance market in Africa and considers (i) the various approaches available to scale up agricultural insurance; (ii) the types of insurance product that could be created; (iii) whether insurance premiums should be subsidized; and (iv) how digital technologies and effective relationships with local partners could be leveraged to facilitate product design and distribution.
This landscape study aimed to achieve:
- A synthesis of market knowledge, including key trends in the African insurance market and the challenges to development of the market
- In-depth product knowledge, including of parametric insurance and digital innovations
- An understanding of the various potential insurance schemes and an awareness of the challenges in distribution
- A clear set of recommendations for the creation of an insurance product for smallholder farmers.
The outcomes of this landscape study should contribute to:
- The identification of priority countries to launch a pilot for a smallholder insurance product.
- The involvement of GCA either as a partner in an existing programme insuring smallholders in a country in sub-Saharan Africa, where the population is connected and digitally active, with a stable government willing to support an insurance programme; or as the catalyst for a new agricultural parametric insurance programme.
- The initiation of a four-step workplan: (i) a feasibility study; (ii) a business agreement; (iii) product design and validation; and (iv) enrolment of farmers into the scheme.
- Once established, the evolution of the insurance cover and type of product over time; for example, from drought index insurance for maize, to a hybrid product for maize, to a hybrid product for maize and cassava.
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