SEATTLE — As the U.S. insurance industry becomes more competitive, there are opportunities for insurance companies in Africa. In a pilot program, Blue Marble Microinsurance is offering inexpensive policies to 335 corn farmers in Zimbabwe, an entirely new, untested market.

Marsh, a global leader in insurance broking and risk management, provided an overview of the current insurance landscape in its 2017 trends report. Although the U.S. insurance industry has remained profitable, it faces stiff competition, shrinking profit margins and new market entrants. Additionally, insurance companies are under more pressure to offer flexible terms of coverage to retain business in an overcrowded competitive environment. Therefore, some insurance companies are exploring opportunities in a new, but largely untouched market: Africa.

In June 2016, the Financial Times published an article called “Africa’s Insurance Market a ‘Giant Waking Up,'” highlighting Africa’s booming young population and growing middle class. Last year, a BBC article found that sub-Saharan Africans worked in agriculture more than any other population on the planet, yet only six percent of the population in Africa and the Middle East were covered by agricultural insurance. Lax regulation, public distrust and an informal economy create hurdles for U.S. insurance companies in Africa seeking to capitalize on foreign investments.

Interestingly, South Africa’s insurance penetration rate — what the Financial Times defines as “total value of insurance premiums as a portion of Gross Domestic Product (GDP)” — was 13 percent. This is comparable to the U.S., which in 2015 had an insurance penetration rate just shy of 12 percent. Africa’s largest economy, Nigeria, had a penetration rate of 0.3 percent, opening doors to entrepreneurial endeavors for U.S. insurance companies in Africa.

Blue Marble Microinsurance, a collaboration between eight industry giants to bring financial protection to underserved populations in emerging markets, will pilot the first crop indemnity insurance plan in Zimbabwe. The companies that make up Blue Marble — powerful players such as American International Group, XL Group, and Zurich Insurance Group — found that 60 percent of the world’s uncultivated farmland resides in Africa; some countries, like Zimbabwe, struggle to meet their potential because of their vulnerabilities to adverse weather conditions and sluggish investment.

Without extensive historical data to forecast future risks, insurers must bear most, if not all, of the risk. Bloomberg discovered that metrics, such as predetermined rainfall levels, needed to build sound insurance policies were scarce. One of Blue Marble’s biggest accomplishments was the development of an index that utilizes metrics to cover the growing season.

In its foray into Zimbabwe, Blue Marble is cautiously offering insurance plans only to farmers of corn, a crop with established historical data, who are making significantly more than the traditional poverty measure of one dollar a day. The company’s chief executive officer, Joan Lamm-Tennant, explained that the immediate goal was not profitability. Instead, the group seeks educational opportunities to try, fail and redesign sound policies before scaling up.

The current pilot will insure farmers for the loss of seed, fertilizers, and herbicides to drought and climate change. Furthermore, Blue Marble installed ground sensors and will use satellite data to research optimal planting and fertilizing times when the rainy seasons begins.

Seeking to capitalize on Africa’s 70 percent increase in mobile subscribers over the past five years, U.S. insurance companies in Africa can create convenient, mobile-based solutions for farmers. One of the features of Blue Marble’s strategy in Zimbabwe is the use of two-way mobile communications with customers. Leveraging their connections and expertise, companies can use key metrics from mobile data to decrease insurance premiums in the future.

During the weeks that ensued President Trump’s inauguration, the New York Times published an article detailing the Trump transition team’s questions about humanitarian aid and business interests in Africa. One of the questions, “Are we losing out to the Chinese?”, suggests a pressing concern from the business-minded president. Thousands of Chinese companies are doing business in Africa’s 54 nations and they contributed to an estimated $300 billion in China-Africa trade in 2015. Yet the insurance market is teeming with opportunity.

Currently, 650,000 African farmers are insured, compared to 200 million insured farmers in Asia. Seeking to serve this demographic, Blue Marble Microinsurance is also looking to capitalize on opportunities to create new customers for other products as well. These small investments in Africa’s speculative but underserved market could result in big returns on investment in the future.

– Andy Jung

Photo: Flickr