Climate Change and Insurance Industry in Ethiopia: Challenges and Opportunities
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Date
2020-11
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Addis Ababa University
Abstract
Climate change has become a leading issue among science, political, and legal scholars,
and it definitely have profound implications for the insurance industry. Climate change
related catastrophic events such as floods, droughts, fires, challenge the insurance
industry‘s abilities to measure, predict, and price risk as well as their financial viability.
Agriculture is one of the macro-sectors of the Ethiopian economy which accounts for more
than 45% of the GDP with majority of farmers depend on traditional rain-fed agriculture;
variations in weather conditions put them into substantial risks. Drought is the major
extreme weather event in Ethiopia affecting the life of millions. The impact of climate
change on agriculture has thus necessitated the need for appropriate action to combat the
negative effects. The main objective of the study is to examine the processes of
implementation and challenges and opportunities of insurance industry in the climate
change adaptations and mitigation. The method of analysis is qualitative and description.
Content analysis of policy and legal documents and explanation are also used. After
assessing different studies and responses from different experts on the sector as well as
data availed by some companies in the sector, it is concluded in this study that the existing
practices of weather related insurance services that can play its own role in adapting to the
impacts of climate change are not satisfactory. Major participants like the National Bank
of Ethiopia /the Central Bank/ are not giving it the necessary focus for this important role
of the insurance sector as a business. Different pilot tastings conducted for more than four
decades in different initiatives from different actors shows no advancement in the sector.
Weather related services of the insurance industry are infant. A number of challenges were
indicated from in this study from the side of service delivery including cost of assessing
the damage in cases of loss, the complexity nature of Index based insurance products costs
of promotion/awareness creation, costs of feasibility study historical data analysis to
determine premium rates, lack of insurance literacy among the local farmers and the like.
In effect this study proposes a feasible solution marrying the merits of both state and
private insurance. Considering the risks associated with drought which hit Ethiopia several
times; it is suggested that government funded or supported services be studied and
developed as soon as possible in Ethiopia to cope with the increasing risks of climate
change.
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Keywords
Weather Index insurance, compulsory insurance, crop, livestock, agriculture.