Uptake of agriculture insurance in East Africa is expected to increase with the anticipated drop in premiums following the launch of a risk-sharing facility.

The risk-sharing facility by the Global Index Insurance Facility (GIIF) and African Reinsurance Corporation (Africa Re) is aimed at encouraging regional underwriters to create affordable insurance products.

GIIF is a multidonor trust fund managed by the World Bank with funding from the European Union, Japan and the Netherlands.

The facility comes at a time when farmers are in distress following widespread crop failure and livestock desiccation caused by failed short rains and drought, which has left about 10 million people facing starvation.

“African farmers need greater access to insurance mechanisms to develop resilience to external shocks and protect their livelihoods,” said Makhtar Diop, World Bank vice president for Africa.

As the impact of the drought worsens, the Kenyan government in partnership with insurance companies has moved in with a $2 million payment to over 12,000 pastoral households under the Kenya Livestock Insurance Programme. Pastoralists will receive an average payment of $170 per household, directly reaching about 100,000 people.

“This insurance programme is a way to ensure that pastoralists can continue to thrive and contribute to our collective future as a nation,” said Willy Bett, Cabinet Secretary in the Ministry of Agriculture, Livestock and Fisheries.

Risky enterprise

Despite agriculture increasingly becoming a risky enterprise due to climate change, the uptake of insurance in East Africa remains extremely low, largely due to high premiums and lack of awareness.

Besides, although regional governments have introduced attractive subsidy incentives like the National Agricultural Insurance Programme and KLIP in Kenya, farmers remain reluctant to take up the cover.

“Lack of knowledge about the mechanism of agriculture insurance is the single biggest hindrance to considering it a risk mitigation measure among farmers,” notes a research commissioned by the Association of Kenya Insurers (AKI) last year.

The study adds that farmers do not appreciate the need for agriculture insurance because existing informal systems of managing risks such as income diversification, multi-cropping and scaling down on production in seasons perceived to be unfavourable for farming seem to work.

Furthermore, farmers already exposed to agriculture insurance have failed to experience the proposition of real value of cover especially where no claim has been made in successive seasons.

Across the region, agriculture insurance premiums range between seven per cent and 15 per cent of the sum insured, depending on the acreage of the produce, something smallholders farmers find unaffordable. With the risk-sharing facility, the target is to see premiums drop to an average of four per cent.

According to Mr Diop, expansion of insurance as a risk management tool is critical because it will enable smallholder farmers to build resilience against the impact of climate change.

“It is the poor and vulnerable who are the most affected by climate change and natural disasters, and insurance is a critical tool to help protect their livelihoods,” he said.