By Sufian Ahmed

In 2015, Ethiopia experienced the worst drought in decades. It affected nearly 10 million people. It is sometimes called the forgotten crisis. But forgotten by whom? As the Finance Minister, I was forced to take funding from health and education and other projects that would have helped our country grow more prosperous and resilient. Finance ministers across Africa know the feeling well. A climate disaster that turns into a fiscal crisis can dismantle a country’s growth plans overnight. African insurers are uniquely placed to address that escalating risk and protect vulnerable populations and the continent’s growth trajectory. This is why the 51st African Insurance Organisation (AIO) General Assembly in Addis Ababa—my home city—lands at exactly the right moment.

Climate Risk Is Fiscal Risk

The AIO was set up over fifty years ago when most African markets were young. It became the natural platform for African insurers, brokers, reinsurers and regulators to speak with one voice. The newly independent countries could not have foreseen that half a century later, one of the biggest risks facing the continent would be related to climate. Africa has emitted less than four percent of the world’s greenhouse gases, yet climate-related shocks already cost us US$7-15 billion every year and could reach US $50 billion by 2040.

Treasuries pay twice for each drought, flood or cyclone: first through emergency expenditures and then through slower growth as budgets are raided to close the gap. Emerging data show how skewed the disaster financing model remains. In 2022, less than 2% of international crisis financing was agreed in advance—and only a tiny portion of that reached low-income countries. Pre-arranged financing accounted for only 0.4 percent in Sub-Saharan Africa —about US $65 million of US $14.7 billion of total international crisis financing.

How we pay for shocks shapes how we prepare for them. If funds appear only after a disaster, we build institutions of relief rather than protection. What we need instead is finance that has been arranged and agreed ahead of shocks, and that is able to flow predictably and quickly where it is needed most.

A Call to Africa’s Insurers: The Three P(iece)s

Although Africa did not create this crisis, African expertise and innovation hold the pieces to help solve it – and our insurance industry must lead the way. 

I challenge every African insurer to step into the gap through the ‘three Ps’: parametric insurance, public-private partnerships and property-catastrophe insurance.

Parametric insurance: We don’t have to let the disaster run its course to tally the damage. Governments are looking for insurance that pays automatically when rainfall, wind speed or crop yields cross an agreed threshold. Last year, regional pools and development banks placed US $2.8 billion of such cover worldwide; cumulative payouts have surpassed US $800 million. No mechanism better illustrates continental momentum than the African Risk Capacity pool, which now protects fifteen countries across the continent. The African Development Bank has amplified that effort by mobilising donor money to subsidise premiums.

Public-private partnerships: We need better agricultural insurance. In Senegal and Kenya, the state splits the premium with the private sector so that smallholders can cover crops and livestock, unlock seasonal credit and invest with confidence even as weather patterns grow harsher. Those schemes are as much rural-development tools as they are safety nets.

Property-catastrophe insurance: We need protection for public assets. Most African roads, schools and power lines remain uninsured. Bringing them under domestic – or regional – markets would cap the sudden reconstruction bills that so often derail capital investment plans.

Through these ‘three Ps’, Africa’s insurers will not only play an important role in managing climate risk – they’ll help redefine fiscal resilience for the continent.

Bridging Insurance and Public Finance

The appetite is there. In Africa Insurance Pulse 2024, the AIO asked senior executives from 22 leading insurers, reinsurers and brokers about their role in resilience. Ninety-five percent said the industry should and can promote disaster risk reduction.

We need to build ‘bridges’ to build bridges. As someone who has sat on the other side of the table, I strongly encourage insurers and financial actors to work more closely with Ministries of Finance and other government departments. Together, we can integrate risk transfer and pre-arranged finance into national budgeting and public investment planning, particularly in high-risk, shock-prone sectors.

But, Africa’s actuarial, regulatory, and reinsurance capacity must continue to be strengthened and scaled to foster innovations that match the continent’s diverse risk profile.

Why the Addis Conference Matters

The AIO Conference and Annual General Assembly are where technical ideas can transform into resilience. The agenda already points the way: for example, the African Development Bank will present the Africa Climate Risk Insurance Facility for Adaptation, a test case for putting the ‘three Ps’ on a continental footing.

If insurers seize these opportunities, they will do more than protect budgets after a drought; they will tilt incentives toward risk reduction long before the rain fails. Pre-arranged finance cannot prevent the next disaster, but it can help prevent a drought from becoming a crisis. The drought will come; the question facing the AIO this week is whether it will take the lead.

Sufian Ahmed is former Minister of Finance of Ethiopia (1995-2015) and a Board Member of the Centre for Disaster Protection. This op-ed is based on a keynote speech delivered at the 51st AIO conference and AGM.