Solutions for the future
Session 19: The Leaders Dialogue - Bringing climate change down to earth: building the resilience of smallholder farmers
For the start of the final day of the conference, ICII participants joined the InsuResilience Annual Forum 2021 to look at the acute problems faced by smallholder farmers in the face of climate change, extreme weather events, volatile prices and the Covid crisis.
Microinsurance Network (MiN) Executive Director Katharine Pulvermacher started by highlighting the important role of smallholder farmers – we all rely on the food they grow, so need to find ways to reduce the negative impact of climate change on food security.
Ingrid-Gabriela Hoven, GIZ Managing Director, referred to a GIZ study in Zambia, where around 1 million smallholder farmers rely on 80% of their income from crops. “When smallholder farmers suffer a loss, they invest less in their crops and therefore they produce less,” she said. “This drives them further them into poverty. The resilience of smallholder farmers needs to be a priority of the climate change agenda, we need to push governments to provide the enabling conditions to reach scale.”
“Smarter, integrated approaches, technology, and partnerships are key to attain sustainability,” she added. “Governments need to invest much more in insurance literacy, data infrastructures and comprehensive risk management tools.”
In the Philippines, said Lorenzo Chan, MiN Chair and CEO of Pioneer Insurance, farmers face declining soil fertility, low technical efficiency, lack of infrastructure and inappropriate trade agreements. “The agriculture and fishing sectors face a lot of risks,” he said. “Public-private partnerships (PPPs) are crucial – no long-term solution can be developed without the involvement of the public sector.”
Finding the appropriate distribution channels, insurance products and access to data is key to improving smallholders’ lives, according to Olga Speckhardt, Head of Global Insurance Solutions at the Syngenta Foundation for Sustainable Agriculture. She identified some common challenges, whether in Africa or the Philippines: the need for multi-stakeholder partnerships, coordination and collaboration; lack of viable insurance solutions; and slow introduction of new technologies. “We still have to answer two main questions,” she said. “Who is going to take the initiative in a partnership? And how can we put the solutions into a single package?”
Maria Teresa Zappia, Deputy CEO of Blue Orchard, said that institutional investors were crucial to reach scale through PPPs. She pointed out that since the InsuResilience Investment Fund (IIF) was set up seven years ago, it has attracted 25 investors and has benefitted around 25 million climate-vulnerable smallholder farmers and small businesses. Echoing Ms. Hoven, she added that appropriate distribution channels and access to data, institutional investors and PPPs are all vital for improving smallholders’ lives.
The key takeaways? Insurance by itself is not enough to face the climate change threat; PPPs are necessary to create sustainable products.
Session 20: How can insurance supervisors adapt to drive innovations?
Facilitator Nichola Beyers, Research Associate at Cenfri, set the scene: “Innovation can create opportunities and improve reach – but with innovation comes risk. Because of the nature of innovation, that risk is often not captured by regulators and supervisors. The traditional role of regulators and supervisors has been to protect consumers and ensure financial stability. How can they balance that with innovation and market development?” she asked.
The role of regulators and supervisors has evolved considerably in recent years, said A2ii’s Technical Lead on Regulatory Impact and Market Conduct Hui Lin Chiew. “The 2008 global financial crash prompted a lot of soul searching about how business is conducted by financial institutions, including insurance. There’s been a renewed focus on consumer protection and about how consumers are treated. At the same time, in many emerging markets there has been a shift towards a market development approach, which comes from a growing self-awareness that developing countries need a proactive approach to tackle economic development and inequalities.” But is this approach working? “Many emerging market supervisors are devising policies which actively encourage innovation and turbo-charge markets,” she observed.
Nigel Bowman, an independent actuarial consultant who is the Chairperson of the International Actuarial Association’s Inclusive Insurance Virtual Forum, confirmed there has been a shift in the mandates of insurance regulators and supervisors, but that more needs to happen. “Sometimes there’s been an aversion to risk that meant new products didn’t get launched. Regulators need to be open to new innovations, have confidence they can identify the big risks and manage those risks appropriately, and engage in an open and positive way. But it works both ways – industry must also be open to engagement,” he said.
The IAA-IAIS product risk assessment tool aims to give regulators and supervisors the confidence they need to make bold decisions, explained Nigel. The tool enables regulators to assess and manage risks relating to data, vulnerability of the target market, and operational capabilities, by identifying and ranking risks, finding potential ways to reduce those risks, and managing them going forward. “Then you can look at how to reduce the high risks, and regularly review and manage risks proactively,” he added.
One person at the sharp end of managing those risks is Protazio Sande, Director of Planning, Research and Market Development at the Insurance Regulatory Authority of Uganda (IRA). In a spirit of openness, the IRA has been proactively communicating with existing and potential players in the insurance sector via a newsletter and social media channels. “People are interested!” he said. “We’ve seen a lot of engagement, we get around 50 enquiries a day from people wanting to establish agencies, or people who have solutions and want to be connected. In response, we came up with a regulatory sandbox framework to accommodate the ideas and proposals. We’ve actually got two firms in the sandbox right now trying out ideas. The gap between regulators and innovators has narrowed. We’re optimistic we will see new ideas and solutions, especially indigenous solutions.”
“Being called a regulator is not the best thing. People see regulators as police officers. If they get a call from the regulator, the first thing they ask is, what have I done wrong?” That’s a perception that Elias Omondi, FSD Africa’s Senior Manager for Risk Regulations, is trying hard to change. “African regulators face a unique challenge. They are trying to protect people who cannot even understand the documents which are supposed to protect them. They need protection because they are vulnerable and financially illiterate.”
Despite the challenges, said Elias, regulators in developing countries must always try to remain agile, and must continuously assess regulatory parameters. “They need to respond very quickly in order to reduce the protection gap. But capacity remains an issue. They are dealing with multiple, continuously moving targets. How will they have the resources and skillsets to deal with innovation?”
Key takeaway: having open communication across all stakeholders is vital.
Session 21: What’s next in inclusive insurance? Closing and outlook
“It’s crystal ball time!” announced facilitator Dirk Reinhard, Vice Chairman of the Munich Re Foundation at the start of the ICII’s final session. Before inviting panellists to gaze into the future, Dirk recapped some of the main lessons learned in the aftermath of the pandemic and the discussions from the conference. These included: health products’ growth in prominence, as revealed in the Landscape of Microinsurance Study 2021; women have been disproportionately impacted; digitalisation accelerated; and climate change remains a key challenge.
Lorenzo Chan, MiN Board Chair and CEO of Pioneer Insurance, believed there are some undeniable truths: the need for insurance is ever-present; the pandemic aggravated this need; and there are still barriers including trust, credibility, accessibility, tech vs touch, and shrinking wallets. “Natural calamities continue to happen around the world, they do not take a break,” he said. “They can be mitigated by insurance, but the pandemic has highlighted the need gap.” Lorenzo identified some sudden shifts, with disruption accelerating pre-existing transitions.
Asked to look into the future, Lorenzo predicted that because people have experienced simplicity and accessibility, this will continue; the tech vs touch tension will continue, but digital will never fully replace human touch; and there will be increased demand for business interruption insurance. “A lot of the insurance industry equates microinsurance with too much hard work,” he concluded. “They say there’s no business case. The one thing the pandemic has highlighted is that calamities continue to happen – ergo, there’s a business case for microinsurance.”
For Tarek Seif, Secretary General of the Insurance Federation of Egypt, the future lies in micro-takaful, or Sharia-compliant microinsurance. “More than 50% of the world’s poorest people live in the Islamic world, and one of every five Muslims lives in extreme and chronic poverty,” he explained. “Islamic people have specific needs. They have no problem with the insurance concept itself, but the process to deliver the product and the contract must be Sharia-compliant. Climate change shows a high need for agricultural insurance for poor people. If takaful companies take proactive steps to develop such a product, I think it will fly!”
UNDP’s Insurance Risk and Finance Facility (IRFF) is a relative newcomer to the inclusive insurance space, but its aims are ambitious. “We are thinking of how we can drive the integration of insurance into the development agenda, how insurance can help achieve the Sustainable Development Goals (SDGs), through partnership, convening, coordinating, trying to transform the markets and how they are operating,” said UNDP Insurance Specialist Miguel Solana. “Inclusive insurance solutions should be pro-poor and human centric; digitally transformative and data-driven; gender-mainstreaming; and driving scale. We cannot afford any more small programmes, we need to think bigger, we need to look at scaling up.”
It was left then to Lorenzo Chan to make an impassioned plea for transformation. “I want to see insurance as a product which is bought, not one which is sold. Then we will really have arrived!”
Closing the 2021 ICII, Dirk Reinhard listed some impressive statistics: 1,500 registrations (45% female) from 120 countries; more than 90 speakers; and 50% of the sessions moderated by women. Finally, he invited participants – for the third time! – to gather in Kingston, Jamaica, for the next conference, from 24-28 October 2022 – Covid-permitting.