Why insurance could become East Africa's next economic lifeline?

“Africa does not lack ambition. Africa does not lack resources. As we have been saying at this conference and at other conferences, we lack execution and flexibility, and insurance and reinsurance are designed to do exactly that,” said Dr. Corneille Karekezi, Managing Director and Chief Executive Officer of Africa Re Group.

The report, Unlocking Africa's Growth Potential: The Strategic Role of Insurance and Reinsurance, argues that insurance should no longer be seen simply as a financial product, but as a strategic development tool capable of strengthening resilience, supporting infrastructure financing and mobilizing long-term domestic capital.

For East Africa, where governments are simultaneously grappling with climate shocks, infrastructure financing gaps and rising debt pressures, the report presents insurance as part of the solution rather than a secondary financial service.

According to Africa Re, only six to seven percent of disaster-related losses across Africa are insured, leaving governments, businesses and households bearing more than 90 percent of losses directly.

“The macroeconomic impact of a disaster is determined not primarily by its size, but by the proportion of insured losses,” the report said.

Floods, droughts and storms are placing enormous pressure on African economies, especially in countries where governments are forced to divert resources from development projects to emergency response and reconstruction.

“When floods happen, when bridges are destroyed, when houses collapse, governments stop other priorities and start reallocating the budget. When disaster strikes it is better to rely on something than to start rebuilding afresh,” Dr Karekezi said.

In East Africa, where agriculture remains the backbone of most economies, the financial consequences are particularly dire.

Millions of farmers in Tanzania, Kenya and Uganda are heavily dependent on rainfall, yet only a small share have agricultural insurance coverage.

When crops are ruined or livestock die due to drought or flood, governments often step in to provide emergency aid, while affected families struggle to recover.

Africa Re believes that expanding insurance coverage can significantly reduce such vulnerabilities while reducing pressure on public finances.

“We are demanding action. If we don't do this, every climate shock will become a fiscal shock,” Dr Karekezi said.

The report cites Nigeria as an example where agricultural insurance programs supported by the International Finance Corporation (IFC) and Africa Re have already extended coverage to more than 1.47 million farmers through index-based products linked to weather conditions.

“In Nigeria we are helping to scale up index-based agricultural insurance reaching over 1.4 million farmers. This is still scratching the surface. We must do more so that we can protect our farmers and help them rebuild when disaster strikes,” said Dr. Karekezi.

The institution says East Africa could replicate a similar model on a larger scale, especially because the region already has advanced mobile money and digital payment systems.

Kenya's mobile money ecosystem, Tanzania's growing fintech sector and Rwanda's digital transformation initiatives are creating opportunities for insurers to deliver low-cost products through mobile platforms rather than relying solely on traditional insurance branches.

Africa Re says such innovations could help expand insurance coverage to millions of informal workers, farmers and low-income households who have historically been excluded from formal financial systems.

“Today we have technology, satellites, mobile phones and digitization of supply chains. All these things are available and we are demanding action,” Dr Karekezi said.

However, the corporation says technology alone will not be enough.

The report argues that stronger insurance markets require deliberate policy reforms, better regulation and greater government involvement.

Proposed reforms include stronger insurance regulators, modern legal frameworks, expanded micro insurance programs and national financial literacy campaigns aimed at improving public understanding of insurance.

Africa Re says many Africans still rely on family networks rather than formal insurance because the culture of risk planning remains weak.

“If an average businessman in Lagos meets with an accident, he calls family members to help him. He does not go to an insurance company first. So we have to change the mindset through reforms, education and enforcement,” Dr Karekezi said.

The organization also wants governments to directly integrate insurance into national disaster management and development planning.

One of the examples highlighted in the report is Morocco, where coordinated reforms involving regulators, ministries and insurers have significantly increased insurance access over the past decade.

Morocco later established a national disaster coverage system that enabled rapid mobilization of payments following disasters.

“When Morocco had an earthquake near Marrakesh in 2023, they could raise about $300 million in a matter of weeks. This is what we need to build on in Africa,” Dr. Karekezi said.

Africa Re says such systems demonstrate how insurance can mitigate economic disruption after disasters and protect government budgets from sudden shocks.

The institution is also positioning insurance as a potential source of long-term development financing for African economies.

According to the report, Africa needs between $130 billion and $170 billion annually for infrastructure development, but only $80 billion is currently mobilized, leaving a financing gap of between $50 billion and $90 billion each year.

Africa Re believes that a strong insurance industry, particularly life insurance, can help close that gap by mobilizing household savings and directing them into infrastructure, housing and government bonds.

“Infrastructure and housing are long-term projects. To find resources that match that profile, you need insurance, especially life insurance,” Dr. Karekezi said.

In countries such as South Africa, Namibia and Mauritius, insurance company assets already account for more than 35 percent of GDP, providing large pools of long-term capital available for investment.

East Africa's insurance market is relatively small by comparison, but Africa Re says the region has strong growth potential due to its growing middle class and rapid urbanisation.

Dr. Karekezi said, “We cannot wait for outsiders to develop Africa. Financial resources are what drive development.”

At the same time, the institution acknowledges that the insurance sector still faces significant trust challenges in many African countries.

Many consumers remain skeptical due to delays in claims settlement, poor customer experience and limited understanding of how insurance products work.

The report therefore calls for stronger consumer protection frameworks, better transparency and faster claims settlement systems as part of efforts to build public confidence in the sector.

“Insurance is not attractive because we are asking people to bring in money today to build the future. But those savings are what finance the economy,” Dr Karekezi said.

Africa Re is also encouraging greater regional cooperation so that more African insurance risks are retained within African financial systems rather than transferred to international markets.

“Our vision is to integrate African risks into Africa first. This will be incredible for building stronger African financial systems,” said Dr Karekezi.

For East Africa, where climate pressures are intensifying and governments continue to search for sustainable development financing, Africa Re says insurance can no longer be an optional financial service.

Instead, the corporation argues, it could become one of the region's most important economic tools to protect livelihoods, manage risk and support long-term development.