An Assessment and Evaluation of Underwriting Factors that Affect Profitability of Crop Insurance: A case Study of the Zimbabwean Insurance Market
Abstract
Abstract
This study evaluates the underwriting factors influencing the profitability of crop insurance in Zimbabwe, a sector facing significant viability challenges. Crop insurance worldwide is vulnerable to climate hazards such as hailstorms, strong winds, dry spells, and floods, which are becoming more frequent and severe due to climate change. Zimbabwe has experienced devastating effects from events like Cyclone Idai, leading to substantial claims that threaten the financial stability of insurers. The study's objectives are threefold: to identify and evaluate underwriting factors affecting profitability, to ascertain the relationship between these factors and business profitability, and to propose strategies to enhance the profitability of crop insurers. The research employed a mixed-methods approach, integrating qualitative in-depth interviews with managers of agriculture underwriting departments and quantitative surveys administered to senior-level employees in both claims and underwriting departments. Key factors identified include product pricing, underwriting capacity, and loss assessments. Findings reveal that loss assessments is the most influential factor. Accurate product pricing, underpinned by international models, and enhanced underwriting capacity, supported by reinsurance and government subsidies, are critical for improving profitability. Regression analysis further quantifies these relationships, indicating that improvements in product pricing and underwriting capacity significantly enhance profitability, whereas inaccuracies in loss assessments detract from it. The study concludes that crop insurance in Zimbabwe is largely unprofitable, with most crops and insurance products showing loss ratios exceeding 100%. To improve financial outcomes, the study recommends adopting accurate pricing models, building underwriting capacity, and implementing technological advancements in loss assessments.
Keywords: Crop insurance, Underwriting factors, Profitability, Climate hazards, Product pricing, underwriting capacity, Loss assessment
