Steve Mbogo
8 September 2008
Farmers who lose their crops to drought and hailstorms will soon be compensated when a new insurance policy that covers weather-related agriculture losses is unveiled.
The product comes at the time when weather patterns have become erratic, leading to reduced production of food. Due to global warming, farmers no longer rely on traditional practise of planting when the rains come as drought, floods and disease are daily occurrences in most regions.
The product is to be launched by Financial Sector Deepening Kenya, (FSD Kenya) a group, which works to enhance access to financial services to the rural population. "We are currently in the process of recruiting a full-time project manager to run the programme. Once we have the manager on board we will formally launch it," said David Ferrand, the director of the FSD Kenya.
The insurance will motivate farmers to take loans to buy input, hence raise crop yields, aware than in case of losses, they will not default on loans. Likewise, lenders are likely to give more money to farmers because the risk of default will be low.
FSD Kenya run a pilot project for the weather indexed crop insurance scheme in 2006 in Kitale and Nakuru, but the results of the project were "mixed", according to Mr Ferrand. This is because the areas enjoy stable rainfall and might not need such an insurance cover. But, a study by project partners like Commodity Risk Management Group of at the World Bank and the International Research Institute (IRI) for Climate and Society at Columbia University, shows there is need for such a policy to cover other areas that experience erratic weather patterns.
FSD said Kenya is among the countries in sub-Saharan Africa that is best suited for index insurance because the agro-meteorological climate is moderate. Weather data is also available - including historical data, which is essential to the construction of an index.
There also exists a large and dynamic set of insurers and delivery channels, such as banks and microfinance institutions, available to distribute the product; and a market that is sufficiently large enough to attract the interest of reinsurers.
Data from the International Strategy for Disaster Reduction shows that the Eastern Africa region is highly vulnerable to weather-related disasters. In the period from 1994 to 2003, for instance, the region experienced 101 flood incidents, 36 storms, 65 droughts, six landslides, five earthquakes, 122 geological epidemics and two insect infestations. The project manager is expected to come up with the structure of the product including the cost of the premium.
The project will be first of its kind in the country because the existing agriculture insurance products from Blue Shield Insurance Company do not cover against drought. Agriculture experts say while such commercial insurance products are important for the large scale farmers, the cost may be too high for the small holder farmers hence the need for "simple form of weather indexed insurance products" that are cost-effective.
The weather-indexed compensation plan is seen as advantageous because by measuring changes in the weather relative to the needs of the particular crops, it is possible to estimate losses of farmers near the weather station.
FSD Kenya says its second key benefit is timeliness of payouts: almost immediately after a critical weather period, the insurance company can trigger payouts to farmers, because weather data is reported on a real-time basis to the insurer.
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