Agricultural insurance premiums have crossed Sh1 billion mark, pointing to increased uptake of crop and livestock covers by smallholder farmers.
Data from the Association of Kenya Insurers (AKI) shows total gross premiums for agricultural insurance hit Sh1.09 billion last year – a 66 per cent growth from Sh655.88 million in 2019.
“Kenyans are getting more informed about the cover and its importance. This is driving up the uptake and the trend is likely to continue,” said AKI Chief Executive Tom Gichuhi.
The State has been partnering with crop and livestock farmers to increase the uptake even though many insurers remain reluctant to fully embrace the sector due to attendant risks.
Smallholder farmers are spread in wide areas, attracting high distribution costs. This makes the premiums expensive and out of reach for many.
The agricultural insurance premiums are however just 0.82 per cent of the Sh132.7 billion gross written premiums for general insurance covers.
All general insurers are licensed to underwrite agricultural insurance but only 10 companies had rolled out agricultural covers by end of last year.
The low uptake of agricultural covers means majority of farmers remain vulnerable to natural disasters.
This poses social and economic challenges, worsened by droughts in the northern part of the country every three to five years. Estimates by the Ministry of Agriculture show the economy lost Sh1.33 trillion ($12 billion) during the extreme droughts that occurred between 2008 and 2011.
The State spent Sh4.2 billion on post-disaster interventions.
The livestock sub-sector accounted for 72 per cent or Sh957 billion of the loss, highlighting the vulnerability of farmers in the absence of any form of insurance for their crops and livestock.
Insurers lack capacity to underwrite catastrophic risks associated with drought, floods and other agricultural shocks. This has seen them fear on onboarding farmers.
The Agriculture Ministry says climate change has worsened weather-related risks such as droughts, floods, pests and diseases, exposing farmers to huge losses.
Banks have also been reluctant to lend to the agricultural sector due to high risks, limiting opportunities to invest in modern technologies to up productivity.
The Agriculture Ministry has rolled out a policy to accelerate growth and development of agricultural insurance but admits that smallholder farms are spread over wide areas, increasing distribution costs for agriculture insurance.
“This is exacerbated by lack of established insurance agent networks in rural areas,” says the ministry.
Kenya has been trying index-based insurance to lower transaction costs.
However, low incomes among farmers stand in the way even as food and housing take priority.