Forest Insurance Ethiopia’s Green Shield
Ethiopia’s ambitious Green Legacy Initiative aims to transform the nation into a green paradise. However, the looming threat of climate change and natural disasters casts a shadow over this vision. Forest insurance emerges as a crucial safety net. This commentary by insurance insider Fikru Tsegaye Wordofa delves into why Ethiopia urgently needs this financial safeguard. The article shows how forest insurance can protect the country’s invaluable green assets, bolster the economy, and contribute to a sustainable future.
Forest insurance started over a century ago and is now practised in many countries. In fact, it is becoming one of the most preferred risk management tools to finance resilience and adaptation to climate change. However, little synthetic knowledge exists, and the protection is found at a “no coverage” level in Ethiopia.
Forestry provides essential ecological, economic, and social services to human beings. However, natural hazards, such as fires, hurricanes, floods, and droughts, can occur anytime during the long production cycle, wreaking havoc and threatening the vitality of forest ecosystems and their services. At the outset, it is essential to understand that forestry insurance covers many of the transactional costs and risks, such as equipment damage, whereas forest insurance shields against the loss of trees and other vegetation arising out of a variety of potential causes, ranging from natural disasters and floods to animal interference, vandalism, and more.
Although there is a state-led effort to improve the forest coverage in Ethiopia, the Green Legacy Initiative aspires to protect, cherish, reverence, and develop Ethiopia, change the course of history and bequeath its legacy to the next generation. Due to artificial and natural hazards, potentially more significant risks could hamper the forests. There exists a demand for forest disaster insurance, provided the insurance industry prepares suitable insurance protection with a complete understanding of the risk, insurance models, and claim settlement options and modalities.
Data on forestry’s contribution to the economy are not readily available. However, the government has undertaken considerable initiatives in environmental protection and restoration of overexploited and degraded natural resources and forests. The enormity of the interlinkages contributes significantly to Ethiopia’s efforts to achieve the Sustainable Development Goals.
Ethiopia recognizes forestry’s key role in setting the country on a sustainable and green development path. The current 15.5 per cent forest coverage needs to improve to provide an economical and ecological support system in this mountainous and climatically precarious country. While protecting the existing 17.35 million hectares of forest, Ethiopia also intends to undertake large-scale afforestation and reforestation to double the total forest cover by 2030
One among them, and by far the most consequential, has been the Green Legacy Initiative (GLI), rooted in a vision of building a green and climate-resilient economy by planting billions of seedlings annually and mobilizing citizens throughout the nation. This has immensely contributed to Ethiopia’s efforts to meet its international commitments, such as the Paris Climate Change Agreement, the 2030 Agenda for Sustainable Development, and African Union Agenda 2063.
However, equal to the planting of trees, as an effective mechanism to compensate for the damage of natural hazards, forest insurance plays a crucial role in stabilizing producers’ income for commercial forest owners and stakeholders that are keen on safeguarding forests and aiding forestry growth, in addition to being an essential strategy for the insured to cope with the risky environment.
Figures indicate that the country has approximately 26.80 million hectares of suitable land for new commercial forests and 190,000 hectares of state-owned plantations in different regions available for development or improved management. The government has shown its commitment to support investment in the forest sector through the introduction of the new 2018 Forest Law, the National Regional Forest Development Program, the REDD+ Strategy, the Bamboo Development Strategy and Action Plan, the Investment Policy, the Home Grown Economic Reform Programme, the 10-year perspective plan, regional laws/legislations, and guidelines all support and promote forest development interventions.
Considering the vast potential, it’s always surprising why the Ethiopian insurance industry has a limited appetite for agriculture-related perils. Although forest owners and the government may seek to protect their investment in insurance, the unavailability of coverage in Ethiopia has been a hindrance. In this regard, the insurance industry has to start providing meaningful and value-adding products that can go with the country’s real risk exposure instead of giving much focus to standard commercial insurance covers. The sector has to pursue the country’s development and growth trajectories and respond to the insurance needs the path creates.
Although the coverage is limited in Ethiopia, the agriculture sector has partial crop insurance and credit facilities, whereas agroforestry has yet to be left behind. The need for forest insurance to protect them from various climate-related disasters is indeed timely. The good news is that the recommendations have already been implemented in other parts of the world, and this Agroforestry Insurance should be equally started in Ethiopia. This insurance protection is expected to open a new chapter in the sustainability of forests in Ethiopia.
Agroforestry systems across Ethiopia also have significant potential to increase rural productivity and climate adaptation and generate alternative sources of income, jobs in rural areas, and raw materials for agro-industries. In this regard, the insurance companies should come forward to provide the necessary protection. The product can, among others, protect trees planted to safeguard economic losses against fire, windstorms, and other selected perils that could endanger the forest and other properties. The product can offer cover to all areas of Forestry and be tailored as a bundle to include the risks faced by farmers and plant and machinery unique to the sector under a single bespoke policy, i.e. the liability risks and equipment can be protected under one insurer and policy wording. Risks to be covered by forest owners may differ depending on where the forest is located and its value.
Forest insurance is a popular way to reduce losses from forestry disasters, and forest insurance has been implemented in many countries. The international insurance industry is responding to the insurance needs of forestry. Insurance solutions are available now in many forms, and the same is expected in Ethiopia. It has to be underlined that Forest insurance is a popular way to reduce the loss of forest disasters, so it is necessary to involve stakeholders actively. Hence, all stakeholders, the government, insurance companies, and forest farmers should come together and work on availing insurance protection in Ethiopia.
If the insurance industry and government can partner in offering forest insurance, it can effectively safeguard agroforestry and encourage commercial forest plantations. This effort would enable the insurance industry to add value to the nation’s well-being.
12th Year • Aug 2024 • No. 132