Landmark regulation increases agricultural resilience in DRC

Landmark regulation increases agricultural resilience in DRC

The agriculture landscape in DRC has seen significant traction over the last decade. On the other hand, there are also concerns regarding limited access to agricultural innovations, decreased productivity, reduced agricultural yields and lower product quality for consumers, both at the household and market levels. The country is especially vulnerable to the effects of climate change and because 95% of DRC’s agriculture is rain-fed, the sector is highly susceptible to weather changes. In addition, smallholder farmers, who mostly lack financial support, dominate the agriculture sector and they are especially vulnerable to climate change. According to the International Fund for Agriculture Development, about 70 percent of the employed population is engaged in agriculture, mostly for subsistence, and this sector directly contributes to 20% of the country’s Gross Domestic Product. Hence, the agriculture sector has significant untapped potential in the overall food security and sustainable, equitable economic development agenda of the country.

With the goal of increasing resilience in the agriculture sector, in 2021, GIIF started supporting the WBG’s Financial Sector Development Programmatic Advisory Services and Analytics (ASA) project in the country.  Under this ASA project, the components were designed to respond to requests from the Government to help strengthen the financial sector through reforms and capacity building activities to increase access to more affordable financial services and products in the country. Incorporating a component on the development of agriculture insurance, the project aimed at contributing to the stability and inclusivity of the financial sector, ultimately leading to enhanced access to finance for farmers and pastoralists for supporting their financial or climate resilience.

The agriculture insurance component focused on examining the feasibility of developing insurance solutions for rural population. It identified technical, operational, financial and institutional challenges and provided recommendations for the development of a market-based agricultural insurance product, possibly through a public-private partnership between the Government and the nascent and growing domestic insurance industry. Additional activities also included i) the establishment of a National Committee on the Development of Agriculture Insurance (NCDAI) to oversee the implementation of technical assistance and ii) a review of the insurance regulatory framework covering microinsurance and index insurance. In May 2023, it was announced that the new Microinsurance and Index Insurance regulations were approved by the insurance regulatory authority (ARCA). This is a notable milestone for the World Bank Group and for smallholders in DRC.

In this issue, we are talking with Mme Fanny Mbilo Eale, Deputy General Manager – ARCA, on this recent announcement. 

GIIF: How would you describe the market development for index insurance in the Democratic Republic of Congo?

Mme Fanny Mbilo Eale: Since the liberalization of Law No. 15/005 of March 17, 2015, known as the Insurance Code, and four years after the opening of the insurance market in the Democratic Republic of the Congo (DRC) in March 2019, the insurance sector has witnessed significant dynamism.

Once a monopolistic sector, the number of operators has grown to 42, including 10 insurance companies, 30 intermediaries, and 2 reinsurers, with a total turnover of approximately 291 million dollars by the end of December 2022, compared to 70 million dollars before March 2019.

Despite the growth observed in the sector since its liberalization, it is essential to note that a significant portion of the Congolese population, as well as certain economic actors, particularly those with lower capacities, still lack insurance coverage. It is worth emphasizing that insurance provides substantial value by enabling households to enhance their resilience and fostering entrepreneurial activities.

However, this positive trend in the insurance sector in the DRC not only reflects the increasing confidence among stakeholders but also underscores the ARCA's determination to restore the strategic importance of this sector in financing the economy and promoting the well-being of Congolese society.

Insurance serves as a "safety net" that strengthens the resilience of households, businesses, and communities. When effectively implemented, it can achieve objectives such as poverty reduction, job creation, agricultural development, and food security, among others.

In response to these challenges, it is crucial for the sector to innovate and reinvent itself, building coverage models capable of protecting individuals or organizations without disrupting the sector's equilibrium.

GIIF: What steps are you taking as a regulator to foster innovation by commercial insurers while simultaneously protecting insurance customers, especially smallholders?

Mme Fanny Mbilo Eale: It is important to recall that the Head of State, His Excellency Mr. Felix Antoine TSHISEKEDI TSHILOMBO, has prioritized the agriculture sector as a top priority of his government, advocating for the primacy of the soil over the subsoil.

The Head of State has emphasized the necessity for the DRC to harness its significant agricultural potential as a credible alternative to ensuring food and nutritional security at local, national, regional, and international levels. He reiterated that the revitalization of agriculture remains one of the major pillars of the government's action, as outlined in the National Strategic Development Plan (PNSD).

As government advisors on insurance matters, we are considering the following measures:

• Implementing regulations concerning microinsurance and index-based insurance, which will:

• Mark a decisive turning point in supporting low-income operators.

• Contribute, beyond financial assistance, to reducing risk, stimulating productivity and asset accumulation, and providing tangible benefits to many of our citizens who cannot be covered by conventional insurance.

• Encouraging insurance companies to innovate and incorporate certain market dimensions, not only to design insurance products that truly meet the needs of customers but also to establish new, tailored distribution channels that enable genuine inclusivity of insurance.

• Urging, under Article 460 point 4 of the insurance code, banks, financial institutions, microfinance institutions, approved savings banks, and the postal service to consider the possibility of distributing insurance products on behalf of insurance companies, as currently done through bancassurance.

ARCA has already engaged with the Central Bank of Congo, the regulatory authority for "microfinance," to examine this issue of insurance product distribution through these institutions.

Although the task ahead is significant, if we aspire to develop a healthy, equitable, inclusive insurance market that complies with international standards and is a benchmark regulator of a dynamic insurance sector, we must lay strong foundations.

GIIF: How would you summarize the key highlights of the recently approved framework (le règlement relatif aux opérations de Micro-assurance et le règlement relatif à la Micro-assurance indicielle) and how does it align with your ambitions as a regulator?

Mme Fanny Mbilo Eale: What we need to understand from regulations No. 002/23 and No. 003/23 regarding "microinsurance" and "index-based microinsurance," respectively, is that these regulations have been developed and implemented to protect low-income individuals against specific risks.

Regarding microinsurance, we can say that the construction of the regulations follows a structure similar to the Congolese Insurance Code, encompassing insurance contracts, companies, licensing, financial regime, intermediaries, and sanction provisions.

As for the regulation on index-based microinsurance, the novelty, particularly concerning agricultural risks, lies in the possibility of offering tariffed contracts based on an index. This innovation will facilitate and standardize the claims settlement procedures.

These regulations define the specifics of:

• Contracts: the applicable rules for subscription, product marketing, indemnification, etc.

• Companies: the requirements for accreditation to conduct microinsurance operations, minimum required social capital, etc.

• Intermediation: introduction of new distribution methods, designation of authorized individuals to present these products, etc.

The aforementioned specifics allow for clear, simplified contracts that can be translated into local languages (of the insured) and require a prompt response and indemnification from the insurer.

The adoption of these regulations aligns with our aspirations because if microinsurance is well implemented, it can significantly contribute to improving the living standards of the low-income populations in our country. In a nation where the majority of the population is excluded from traditional financial systems and where social protection systems are almost non-existent, microinsurance can play a vital role.

GIIF: What is next on the horizon for the insurance industry in DRC following this milestone?

Mme Fanny Mbilo Eale: Through this innovation and revolution, ARCA can hope to see insurance solutions and products become much more accessible to a larger segment of the population. Henceforth, the insurance sector will finally be able to claim progress in reducing the insurance penetration rate by introducing inclusive insurance products to the market and substantially contributing to stabilizing the macroeconomic framework and boosting economic growth.

This development will also have an impact on the creation of numerous direct and indirect employment opportunities, an increase in consumers' purchasing power, enhanced revenue mobilization for the state, improved business climate, and reduced country risk.

The implementation of microinsurance and multisectoral index-based insurance will, among other benefits, fully embrace the digital revolution (dematerialization and digital tools for claims processing and insurance product distribution) and position the insurance market in the DRC among the top 5 African insurance markets.

In light of the above, ARCA can modestly aspire to contribute to the national financial inclusion strategy recently presented by the Minister of Finance, HE Nicolas KAZADI, during the 104th Council of Ministers meeting held on Friday, July 14, 2023, particularly in improving the penetration rate from 0.46% currently to 3% by 2028.

Considering the economic impact of climate change on African smallholder farmers, this is indeed a significant development for the agriculture sector in DRC. The WBG’s multi-dimensional support is expected to help improve the welfare of farmers and the most vulnerable in the country.

We thank Mme Fanny Mbilo Eale for her valuable insights and contribution to this piece. For more information on the activities in DRC, please click here.

Photo Credit: ARCA