With small- and large-scale farming alike helping to drive growth, agriculture is big business in Kenya. The country shows immense potential for companies offering agricultural coverage. The sector contributes around 30% to GDP, and six out of 10 Kenyans depend on farming, livestock and fisheries, according to the World Bank. “The main backbone of the economy is agriculture,” Joseph Kamiri, director of group strategy and marketing at CIC Insurance Group, told OBG. “People want to insure things they use to make their living – cereals, coffee.” However, more than 75% of the country’s farmers are smallholders and highly vulnerable to climate variations and other shocks, which can have a significant impact on rural development and growth. For example, northern Kenya sees severe drought every three to five years. In the severe droughts of 2008-11, it was estimated that 9% of all Kenyan livestock died, costing KSh699.3bn ($6.8bn), while crop losses were KSh121.1bn ($1.2bn). Climate change is likely to exacerbate these challenges. Each shock means lost assets, lower revenues and lost jobs – which in turn drive up the costs associated with recovery. Disaster relief has cost the government on average KSh4.2bn ($41m) a year over 12 years and donors KSh8.1bn ($79m), mostly on food aid – some of which only arrives a year later, according to the World Bank.
These uncertainties bring with them potential for agricultural insurance, yet the product is still considered niche in Kenya, with EY estimating that agricultural insurance accounts for 4% of gross written premiums (GWPs). However, the segment has still been seeing strong growth in excess of 30% annually – the Association of Kenya Insurers (AKI) says GWPs totalled KSh362.5m ($3.5m) in 2015, up from KSh270.4m ($2.6m) in 2014. Crop insurance accounted for 59% of GWPs, while livestock insurance made up 41%. Claims incurred were KSh118.8m ($1.2m), down from KSh175.8m ($1.7m) in 2014.
Existing products include traditional indemnity-based crop and livestock cover, mostly directed at medium-and large-scale commercial cereal and dairy farmers. Seven local insurers – APA, Africa Merchant Assurance, CIC, Heritage, Jubilee, Kenya Orient and UAP – also offer multi-peril micro-insurance products, which cover smallholder maize farmers for crop yields of below 80% of the expected harvest when lower yields are due to climate, disease, insect damage and other causes.
Some innovative programmes in the pipeline attempt to present further options to mitigate risks for smallholders. Pilot programmes for index insurance that pay out based on various indexes such as rainfall, for example, are tailored mostly to small and semi-commercial farmers. UAP works with the Kilimo Salama (Safe Agriculture) programme in Kenya to offer weather index, area-yield index and satellite-based index insurance plans that cover a number of crops. According to the International Finance Corporation, the programme covered 67,607 farmers in Kenya in 2013 at an average cost of 5% to 25% of insured inputs or harvest.
Area Yield Index Pilot
The World Bank’s Disaster Risk Financing and Insurance Programme, the Netherlands’ Ministry of Foreign Affairs, the US Agency for International Development, and the multi-donor trust fund Global Index Insurance Facility, fund another area-yield index pilot programme, which covers maize and wheat harvests. Farmers with as little as one hectare of land can use mobile handsets to insure themselves against extreme weather conditions. The government ensures that data is properly collected, and the scheme was piloted in Nakuru, Embu and Bungoma counties, and is aiming to reach 33 counties by 2020. It divides farming areas into insurance units. When average production in one unit falls below a certain threshold, all insured farmers in the unit receive a payout.
For customers in remote or rural areas, mobile access to new insurance schemes can be crucial. Mobile plan registration and claims tracking helps to make insurance more accessible, and improve accuracy and speed of payouts. “We use our index to insure our small-scale farmers, and then use the mobile phone, so that when they pay out, the money automatically goes to the farmer through their phone,” James Wambugu, the group managing director of UAP Old Mutual, said in a 2016 EY report tiled “Waves of Change: Revisited Insurance Opportunities in sub-Saharan Africa”.
Take-up of the various agricultural insurance products has been varied. Researchers at Tegemeo Institute of Agricultural Policy and Development in Nairobi found the number of households buying insurance climbed from 1.3-3.5% in 2009 to 34% in 2013, and then fell back to 12% in 2014. One problem was that payouts were often much smaller than losses incurred. The insititute found that farmers were not compensated when they suffered losses, and felt their expectations were not met. There were also limitations on the types of seeds and crops farmers could insure.
In March 2016 the Ministry of Agriculture, Livestock and Fisheries (MALF), together with the World Bank, launched the Kenya National Agricultural Insurance Programme, designed as a public-private partnership with one part focused on crops, and the other on livestock. The World Bank recommended that the government should subsidise 50% of the cost of crop insurance for wheat and maize farmers, and 100% of livestock premiums for pastoralist herders, depending on beneficiaries’ income. The cost for the first five years was estimated at KSh619m ($6m), offering affordable cover for 160,000 farmers by 2019.
Another part of the initiative involves the Kenya-based International Livestock Research Institute (ILRI), which has been seeking the best way to support smallholder herders. ILRI principal economist Andrew Mude told press in April 2016 that payments after disasters are often too late, so the new programme takes a different approach. “We are now providing asset protection,” he said. “The idea is to intervene before loss”. The result is Kenya Livestock Insurance Programme (KLIP), introduced for 5000 pastoralists in Turkana and Wajir in October 2015 and to be extended across the region by 2017. Satellite imagery is used to determine whether enough forage is available, and payouts are triggered when too little rain means grazing is less than 20% of ideal conditions. The government purchases drought insurance from private insurance companies on behalf of pastoralist herders, with funding from donors to help poor households. Julius Kiptarus, director of livestock at MALF, told local media in April 2016 this would protect the livelihoods of 420,000 people. The test ground for KLIP was Marsabit County, and APA insurance coordinator Edin Ibrahim said sales picked up in 2016. “Our clients now understand the concept better,” he told local media in April 2016. “When rain fails, they get payouts to sustain their livestock.”
Ezekiel Macharia Mburu, the chief actuary at Kenbright Actuarial and Financial Services, told OBG agricultural insurance could grow to 20% of the market in five years, on the back of increased consumer demand – something that seems inevitable given the increased volatility of climactic conditions.
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