Agriculture insurance

Agriculture is the backbone of many developing economies, but it is exposed to various risks and highly dependent on the weather. Agriculture insurance can help reduce this vulnerability of agriculture-based households and enterprises.

In India, only 40 per cent of agricultural land in India is irrigated, while the remaining 60 per cent is subject to unpredictable weather patterns. Similarly, in Kenya, rain-fed agriculture accounts for about 80 percent of total agricultural production. There is also evidence that rural women suffer more from climate-related events than men do, as 75 per cent of their income is dependent on agriculture.

Agriculture insurance can help reduce the vulnerability of both women and men, households and enterprises that work in agriculture, by providing protection against crop losses due to natural disasters, such as drought, floods, hailstorms, pest attacks, disease outbreaks and other events that can damage crops or livestock. Agriculture insurance is a relevant mechanism to manage risks to help farmers to avoid financial losses and keep their businesses running.

It aims to reduce the financial risk and uncertainty faced by farmers and help them manage their production and income more effectively. Insurance has become even more important as extreme weather events and climate change have increased the risks and uncertainties of farmers and agriculture-based enterprises. By reducing the financial risks associated with farming, agriculture insurance can help to promote stability and growth in the industry.

In addition, agriculture insurance an improve access to credit for households and businesses, as lenders may be more willing to lend money to farmers who have coverage. This can help farmers to expand their operations and invest in new equipment or technology.

Increasing awareness and understanding of insurance among agriculture households and business and improving capacities of insurance providers – including insurers, aggregators and governments – needs continuous efforts. Working with local partners can increase knowledge and capacity on sustainable use and development of climate and agriculture insurance. Stimulating exchanges among relevant stakeholders can also help develop an inclusive insurance market and accelerate the offer of risk-management solutions for agricultural enterprises, households and individuals.

Bundling or coupling agriculture insurance with other (non-)financial services offered by different stakeholders in the agriculture value chain, such as lenders, farm input providers and output buyers, can also promote adoption of insurance by making it more tangible for farmers.

Government policy can play an important role in agriculture insurance, as it helps to promote the availability and affordability of insurance products for farmers. By working effectively with the private sector – through public-private partnerships, providing subsidies, developing risk-sharing programmes and supportive regulatory frameworks – governments can support agricultural productivity while reducing the financial risks faced by farmers and agriculture-based enterprises.