Given  the adverse consequences of climate change which are becoming more evident, the time is ripe for a national conversation to align mitigative roles that government, insurance, finance, and technological companies in Africa must play to make agriculture resilient.

Data from the Food and Agriculture Organisation shows from 2008 to 2018, Kes 3.6 trillion
(USD 30 billion) was lost in Africa due to declines in crop and livestock production following
extreme weather conditions.

Considering that approximately 60 percent of the active population in Africa engages in
agriculture as their mainstay activity, without doubt, they are greatly exposed to the worst
perils of climate change.

Across the globe, the highest agricultural insurance penetration rates are found in countries
that have large nationally subsidised schemes such as the United States and Canada, where
the government subsidies a substantial amount agricultural insurance premium which is a
contrast in Africa and other low-income countries.

But this sorry scenario is slowly being redefined by deliberate measures taken by various
governments to spur agri-insurance adoption. The 2020 Association of Kenya Insurers (AKI)
Insurance Industry Report indicates that total gross written premiums in 2020 in agriculture
insurance amounted to Kes 1.09 billion, representing a significant 66 percent increase from
Kes 659 million in 2019.

Similarly, crop insurance premiums more than doubled from Kes 300 million in 2019 to Kes
636 million in 2020 while livestock insurance premiums grew by 28 percent from Kes 355
million in 2019 to Kes 454 million in 2020.

For example, last year, more than 5,000 maize farmers in Nandi County received compensation of Kes 12 million (USD 100,000) for crop losses during the 2021 season. It was the first-time farmers in the region had received compensation for losses due to climate change. Other programs include the government-led comprehensive Crop Insurance Program (CIP).

The government is also financing the Kenya Livestock Insurance Program (KLIP) in eight arid-
and semi-arid (ASAL) counties where the government pays the full premium for eligible
households covered by the program.

To expand the potential reach of agricultural insurance to smallholder farmers, insurance
products must be attractive, accessible, and affordable. Products such as index-based,
group-based, and technology-driven agricultural insurance products should be adopted to
encourage insurance uptake in rural areas.

Pairing digital innovations with agricultural insurance could help smallholder farmers easily
access insurance at affordable premiums by reducing transaction costs. Additionally, micro
insurance, now fully integrated in the Insurance Act, presents one of the most effective
ways to mitigate agricultural risks to small-scale farmers safeguarding their investments.
Although these factors could grow agri-insurance adoption, there are several challenges
hindering its expansion in African markets.

Agricultural shocks present a difficult risk to insurers as many crop related risks are brought about by weather and natural conditions which are sometimes unpredictable.

These risks are realised over a large geographical area, making it difficult for insurers to
diversify. Moreover, widespread animal diseases may affect pastoralists, generating several
knock-on effects. A large agricultural risk portfolio is therefore susceptible to major losses.
Secondly, government sanctioned disaster payments outside an established resilience
programme could have the unintended consequence of discouraging farmers from taking
agriculture insurance.

Additionally, despite our mature reinsurance market, given the modest size of agriculture
premiums, many reinsurer premium threshold requirements may be beyond the reach of
smaller insurers. Since international reinsurance markets not only provide reinsurance but
also technical expertise in such a niche line of business, local markets suffer a double

Coincidentally, with agricultural risk assessment being complex, particularly on the impact of
extreme natural events on crops and livestock losses, a lack of historical data on agricultural
risks and the randomness of risk occurrence prevents proper risk modelling.

This often leads to inadequate pricing of agricultural insurance products. With insurance
companies having limited experience in agricultural insurance, paired with the complexity of
the risk class, highly specialized skills are required, could disincentive insurer investment.
Smallholder and low-income farmer populations exhaust most of their incomes for
necessities such as food and education, but for those who do buy insurance, health and life
insurance are usually given priority. This unquestionably inhibits the development of agri-

To mitigate this, it is important that financial institutions increase farmers’ access to credit.
It is both in the farmers’ and lending institution’s best interest to take up insurance as
insurance reduces the risk of loan default in the event of catastrophic production losses.
Resultantly, insured farmers could even enjoy reduced borrowing costs due to their lower