The need for climate insurance is acute: In 2022, out of the estimated global economic losses of USD 275 billion caused by natural catastrophes, only 45% were insured.[1] When it comes to developing economies, they not only bear the greatest burden of climate change impacts, but they are also significantly underinsured. For example, agriculture insurance has a 20% global penetration, while in most of Africa it is less than 3%. A recent study suggests that climate change is responsible for at least USD 143 billion per year in costs associated with extreme events.[2]
Climate insurance aims at protecting the lives and livelihoods of individuals and communities from the impacts of climate disruptions, safeguarding economic development and poverty reduction efforts. They are no replacement for the efforts required to mitigate climate change, but they can increase social resilience and communities’ ability to recover faster.
What are the investment opportunities in climate insurance?
I would like to highlight two examples of investable business models that we consider to be at the forefront of providing climate insurance solutions to underserved communities:
Parametric climate insurance: This type of insurance allows farmers and low-income dwellers to obtain claims without verification. Despite being one of the largest exporters of agricultural goods in the world, only 10% of the 4.5 million[3] farmers in Brazil are insured. Newe, one of BlueOrchard portfolio companies and one of the leading crop insurance companies in the country, is currently funding a pilot with 600 small-scale cocoa growers in the State of Bahia, with the objective to gain the intelligence to scale the project to 54,000 farmers.
Insurtech: We have invested in Igloo, a company that, among other insurance products, covers farmers against floods and heat in Vietnam. More than 2,500 farmers[4] are already insured, and the plan is to extend it to reach a significant part of the 10 million+ farmers in that country. In the Philippines, the same company offers a Calamity Assistance Insurance Program which provides coverage (bundled with loans) against natural disasters’ damage. The rate is c. USD 1.5 per policy and already 400,000 people are covered.[5]
While opportunities are numerous, investing successfully in this emerging market requires focus, experience, and deep impact investment and management capabilities to deliver impact at scale.
How to deliver impact at scale?
When it comes to delivering successful climate insurance at scale, we focus on three strategic premises:
1. Investing in fast growing companies that aim to create climate adaptation solutions in the insurance sector value chain. Current investments span from Forte, the leading insurance company in Cambodia, to Skymet, a weather station operator in India, and Agritask, a fast-growing agriculture precision business with global reach.
2. Targeting the largest number of beneficiaries in poor and vulnerable communities in emerging economies. To give an order of magnitude, the nine investments made between 2017 and 2021 have reached more than 50 million beneficiaries and together, investee companies have a realistic goal of surpassing 100 million beneficiaries.[6]
3. Our key value drivers are leveraging technology, scalability and affordability, and operational excellence. Climate insurance is a highly technology-oriented sector where the collection and analysis of weather data is fundamental to adequately price insurance premiums and claims. Second, scalability and affordability are essential to reach economies of scale to offer insurance protection at reasonable pricing levels. Lastly, investors in this emerging space need to be able to add technical and managerial value to these fast-growing companies. For this reason, we seek influential board representation to have strong influence in strategic initiatives. In addition, we have already or are in the process of executing 20 technical assistance and 7 premium subsidies in our portfolio companies.
As the climate insurance sector continues to grow, we are committed to continue to narrow the massive climate insurance coverage gap in vulnerable communities by being proactive investors in companies, leading the way to insure poor and vulnerable communities in emerging economies.
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Any reference to sectors/countries/stocks/securities are for illustrative purposes only and not a recommendation to buy or sell any financial instrument/securities or adopt any investment strategy.
[1] SwissRe, Sigma report, https://www.swissre.com/institute/research/sigma-research/sigma-2023-01.html
[2] Newman, R., Noy, I. The global costs of extreme weather that are attributable to climate change. Nat Commun 14, 6103 (2023). https://www.nature.com/articles/s41467-023-41888-1
[3] Proagro and Climate Policy Initiative.
[4] Igloo.
[5] Igloo.
[6] BlueOrchard.
For further information, please contact:
Tahmina Theis
+41 22 596 47 69
tahmina.theis@blueorchard.com
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