Insurance and Farming, the Inseparables

Creating accessible insurance for farmers could help them protect their livelihoods.

By Dennis Odera, Africa Business Consultant

Insurance and farming ought to be inseparable. However, this is not the case in sub-Saharan Africa. Despite farmers facing an increasing number of risks, very few of them have access to insurance services that could protect them from losses.

Between 2012 and 2015 for example, farmers in Kenya lost approximately Kshs 1.2 trillion ($ 12 billion) to drought. Most of these farmers had their agricultural enterprises destroyed, leaving them without any source of income. But this would not have been the case had they been insured.

Generally speaking, there has been a poor uptake of insurance services in Kenya. A study commissioned in 2015 found that Kenya’s insurance penetration rate stood at just over 3%. More than 75% of Kenya’s population work in agriculture so insurance companies need to crack this market in order to improve overall penetration in Kenya.

Why are farmers not insured?

One of the main reasons farmers are not insured is because it is difficult for them to access insurance services. Most insurance providers rely on archaic distribution channels like agents and brokers, which are highly ineffective. Many farmers cannot access the agents and brokers because they live in cities and towns, far away from rural farms. In addition to this, there are not enough brokers to service the needs of the millions of farmers in Kenya.   

Many providers have also failed to offer tailored products/services to farmers. While an individual working at a company might be paid a monthly salary, enabling him to pay monthly premiums, this may not be the case for a farmer. Once a farmer plants his/her crops, it will take a number of months before he/she is able to sell their produce. Therefore, it would make more sense to charge a farmer a seasonal premium instead of a monthly one because of the nature of his craft.

The agricultural sector is also fairly complex which makes it very risky in the eyes of insurance providers. There are so many variables that can derail an agricultural enterprise compared to other business ventures. This uncertainty makes insurance providers view agriculture as high risk and they then charge farmers exorbitant rates. This isolates many farmers who are unable to afford such rates.  

Improving insurance services for farmers

The first thing insurance providers ought to do is make their services easily accessible. Insurance providers can borrow a leaf from financial providers. Before they launched services that could be accessed through mobile, financial providers had a penetration rate of 19% in Kenya. After the introduction of mobile money, the penetration rate of financial services has risen to 75%. By simply making their services more accessible to farmers, insurance providers are likely to see an increase in the uptake of their services in the agricultural sector.

Insurance providers also need to actively engage with farmers and other agriculture stakeholders in order to get a better understanding of their needs and wants. Based on this information, providers can then create insurance services tailored to the needs of the farmers.

Reducing risk with information 

Insurance providers can also partner with organizations which can aide in reducing the uncertainty associated with the agricultural sector. Most of the uncertainty in the agricultural sector can be attributed to farmers lacking enough information to make good decisions. But farmers can prepare for risks and lower uncertainty when they have adequate information.

WeFarm is an example of an organization that insurance providers can work with. WeFarm provides farmers with a platform that enables them to ask any agricultural related questions, via SMS, and get responses to those questions directly on their phone also by SMS. So farmers can find localized and actionable solutions to their problems in a timely manner.

Good access to information greatly reduces the chances of farmers losing their produce to easily solved problems they may encounter on their farms. Farmers can respond to risks and uncertainty when they have good access to actionable information. This will in turn translate to increased productivity by farmers which, in the long run, will enable them to pay for insurance services.

WeFarm can also provide detailed reports to insurance providers based on the millions of farmer interactions on the system. Our data is valuable to insurance providers and can help them gain a better understanding of farmers and the agricultural sector. Insurance providers can stay ahead of the curve and tailor products and services to farmers with WeFarm reports. 

Farming and insurance ought to go hand in hand. Industry players in both sectors ought to make every effort to ensure this becomes a reality.

For more information on how to partner with WeFarm, please contact Dennis on dennis@wefarm.org.

Posted 8 August 2016 | Tagged with: , , , , ,