New firm to provide cover against drought

Drought could become an insurable risk following the entry into the country of an insurance intermediary dedicated to serving the poor with affordable cover.

Microensure’s weather indexed crop insurance provides protection for poor smallholder farmers against catastrophic drought.

Lending for agriculture in areas prone to drought has been viewed as too high a risk because a few farmers are able to provide any form of collateral.

The micro insurance agency’s crop insurance product is designed to provide compensation to farmers when during a crop growing cycle, rainfall is insufficient to grow and optimise yields.

Not possible

For this model, drought is not measured by what happens on the field but by the amount of rainfall received.

Because it is not possible to take measurements on each individual farm, rainfall levels are taken at local meteorological stations.

Participating farmers within a 20-kilometre radius of a station are assumed to have received the same amount of rainfall and to be affected in a similar manner.

In the case of severe drought, all farmers will receive compensation.

“The mechanism is simple, easy to administer and payouts are automatic so there is need for affected farmers to file a claim or an expensive loss verification procedure,” Microensure chief executive, Richard Leftley told reporters in Nairobi on Wednesday.

He said traditional insurance products tend to fail because they are based on complicated policies not suited to the simpler needs of the poor thus often generating misunderstanding and mistrust.

Citing Malawi where weather indexed crop insurance is available, Mr Leftley said when a loan equivalent to Sh8,000 per acre was given to farmers, their yields increased by between 100 and 250 per cent.

He said that with access to the weather insurance, farmers are able to get loans to buy better seeds and fertiliser.

“Weather insurance can unlock credit and the credit will unlock inputs leading to improved production,” said Mr Leftley.

The company currently operates in Ghana, Uganda, Tanzania, Philippines and India, but with $24.2 million (Sh1.8 billion) grant from Bill and Melinda Gates Foundation it will enter into 11 new countries among them Kenya.

Besides the weather insurance, Microensure also offers credit life, an insurance product that protects the lending institution against the inability of the borrower to repay the loan as a result of death or disability.

It also has healthcare insurance cover for Sh640 a year for a family of four.