The company is examining the introduction of marine, cybersecurity, aviation, terrorism & kidnap and surety contracts, says Shah, the former CEO of AXA Africa Specialty Risks. ASR’s aim, he says, is “de-risking in and across Africa.”
In contrast to traditional insurance, where the exact loss suffered by a client is verified and then paid by the insurer, parametric insurance is paid out if a defined event occurs, regardless of the damage suffered. Examples include rainfall levels, crop yields and earthquakes. ASR says triggers are objective and verifiable, so there can be no dispute about the event.
According to a study from Urban Africa Risk Knowledge (Urban ARK) – a research group led by London University’s King’s College – parametric insurance has the potential to end a broken “begging bowl” system under which charity has to be collected every time disaster strikes. Africa has started to turn to this solution in the face of increasing climate risk.
- Since 2015, a programme backed by Swiss Re has offered parametric drought and livestock insurance in Kenya.
- In December 2020, African Risk Capacity (ARC) Group started a parametric insurance product for African countries in the south-west Indian Ocean region, to provide cover against tropical cyclones.
Urban ARK argues that parametric insurance can speed up availability of post-disaster finance and reduce emergency response costs, thus limiting the economic impact of the event. The “begging bowl” system, it says, creates ambiguity over who is responsible for paying for disasters and leads to “fragmented, uncoordinated” responses.
The research group argues that parametric insurance should be extended to a range of low-intensity but high frequency risks such as local floods, landslides and building collapses facing Africa’s fast-growing cities.
New hubs planned
ASR, launched in August 2020, has been underwriting business since February. Shah and CFO Bryan Howett, who is the former CEO of Old Mutual’s African reinsurance operations, co-founded the firm. The company is backed by Helios Investment Partners and has a reinsurance license in Mauritius.
- Shah plans to offer treaty reinsurance, under which ASR will take on risks accepted by other insurers, from January 1, 2022.
Shah says the parametric approach has efficiency advantages and avoids the need for loss adjusters. Events can be monitored remotely and the payment of claims is faster, with processes drawing on artificial intelligence (AI). In some cases, he adds, it is possible that an insurer can confirm that a parameter has been breached and pay the claim before the client has noticed. In May, the company set up a parametric underwriting division led by Raveem Ismail.
The company is working on starting hubs in six countries, Morocco, Kenya, South Africa, Côte d’Ivoire, Egypt, and Nigeria.
- Shah is confident that the majority of the hubs will be rolled out in the next few months.
- He’s also monitoring Ethiopia closely as a market in which ASR wants to enter in the future.
- Once Covid-19 has come to an end, there’s no reason why ASR would not consider offering pandemic cover, he says.
- ASR has sufficient funding for its growth plans, he adds.
ASR is betting that a parametric approach is the best way for Africa to manage risk.
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