Agriculture is the lifeblood of developing economies, sustaining millions and contributing up to a third of GDP. Yet it remains fragile, exposed to climate shocks, pests, and volatile markets. Agriculture insurance is the strategic safeguard securing resilience and stability.
As a risk transfer mechanism, agriculture insurance protects farmers from financial loss caused by several perils that affect production. These include adverse weather conditions, pests and diseases, to name a few. It has effectively demonstrated its importance in promoting agricultural sustainability worldwide.
Agriculture insurance is not a new phenomenon, as it traces its roots back to the mid-1700s with the introduction of hail coverage in Europe and the Americas. It was later introduced to Africa in the 1900s through hail cover offerings on the Eastern Cape of South Africa. Zambia is reported to have been issuing named peril agriculture policies to a few selected commercial farmers as early as the 1980s.
Over the years, agriculture insurance has evolved in terms of product and coverage to meet the ever-changing weather and agrarian needs. The product scope has widened to include crops, livestock, aquaculture, forestry, and many others, with an increased shift towards parametric or index offerings for crops due to the product’s inclusive, transparent, and cost-effective nature.
Undoubtedly, agriculture insurance has proven to be an effective tool in enhancing farmer resilience and improving food security, as evidenced by the surge in government participation worldwide.
By 2007, about half of all countries worldwide were reported to have had agriculture insurance in one form or another, generating about $15.1 billion in premium income. By 2021, there were reportedly more than 50 million smallholder farmers worldwide enrolled in index insurance.
The Zambian agriculture insurance space has also seen steady growth, particularly following the 8th Africa Insurance Congress product scaling discussions held in Zambia in 1981. However, the most significant leap has occurred over the last 15 years, with increased private sector participation, as privately owned insurers have taken the lead. The advent of parametric covers has boosted agricultural insurance penetration, with more than 1 million farmers enrolled in a single product – the Farmer Input Support Program (FISP).
A surge in similar products has emerged across Africa and Asia, with an estimated 30 million smallholder farmers on index cover in India alone. The importance of these products cannot be overemphasised, given the high dependence on agriculture in low and middle-income countries, with the agriculture-to-GDP ratio ranging between 15 to 35%.
Furthermore, climate risks have become a significant challenge to the stability of agribusiness value chains and have attracted development partners, such as the African Development Bank (ADB), to set aside over $25 billion for climate financing.
This is a clear demonstration of the desire by key stakeholders to ensure products meant to protect farmers’ incomes and stabilise economies are made available and maximally deployed, with insurance companies expected to take the leading role in product development.
Dean Simuchimba
Agriculture Risk Specialist
Finsbury Reinsurance Limited