Kilimogram

The agricultural sector contributes majorly to the Kenyan economy. According to the World Bank, agriculture contributes about 26% to Kenya’s GDP and an additional 27% through indirect connections with other industries.

But even with such high prevalence, crop insurance in Kenya still remains underdeveloped. One of the reasons for the under-utilization of crop insurance in Kenya is a lack of understanding of how crop insurance works.

In this article, we will zero in on how crop insurance works then we will provide a list of companies that offer crop insurance in Kenya.

What is Crop Insurance?

Crop insurance is an insurance policy purchased by an agricultural producer to protect him or her from the risk of loss that results in low harvest yield or low revenue.

Terms Associated with Crop Insurance

  • Insurer- The organization or company that agrees to pay compensation in case of loss of an insured peril.
  • Insured- The person or entity to be compensated in case of loss. In the case of crop insurance, the insured can be a farmer, grower or rancher.
  • Premium- The money paid by the insured to the insurer over the coverage period as stated in the policy.
  • Insured Peril-The stated risk or cause of loss that enables the insured to claim compensation. For instance, drought, floods, hailstorms, and pests and diseases.
  • Claim- The application for compensation if the insured peril occurs.
  • Indemnity- The compensation given by the insurer to the insured after the occurrence of the insured loss. Compensation can be in cash, repair, reinstatement or replacement.
  • Loss- The event insured against. Loss is the event that allows the insured to claim compensation.
  • Evaluation- The assessment of the value of insured property or asset to determine the payable premium or compensation.

Types of Crop Insurance

There are two types of crop insurance policies. They are multiple peril crop insurance and crop hail insurance.

Multiple peril crop insurance

This type of crop insurance is offered through programs created by a federal government. Multiple peril crop insurance is prevalent in the US. In Kenya, the program that came close to multiple peril crop insurance was one in 2016 between the Ministry of Agriculture, Livestock and Fisheries and World Bank.

How does Multiple Peril Crop Insurance Work?

Multiple peril crop insurance covers certain crops. This type of crop insurance is offered to crops deemed as very beneficial to a country’s economy or that stand to be destroyed massively in case of a catastrophe. The common ones are maize, wheat, cotton and soybeans, though coverage is extendable to less common crops.

First off, the government partners with insurers that agree to participate in the program. The insurers then extend the insurance programs to the public through agents. The insurer gets applicants, collect premiums and issue coverage and pay claims.

The government will reinsure the insurers if claims exceed the insurers’ capacities to compensate. And if the insurer collects more than it pays, the government will get a share of the profits.

The coverage of multiple peril policies is either yield-based (where a farmer is protected against loss of harvest due to natural and unavoidable causes) or revenue-based (where the farmer is protected against loss of revenue in case market price drops).

For yield-based policies, farmers are compensated if the yield loss exceeds 50% of their historical yields.

To take multiple peril policies, farmer and growers should request coverage before the sales closing date (this is the last date of insurance application and usually in conjunction with the start of a growing season).

Crop-Hail Insurance

Crop Hail insurance is offered by private insurers and can be bought at any time. The government does not back this type of crop insurance. Crop Hail Insurance can cover any products, depending on what the insurer wants to cover.

The cycle of Crop Insurance

The crop insurance cycle varies, depending on the insurer and the type of crop insurance, though the basic process is as follows:

1. Application

The insurer distributes a policy document that highlights the insurance plan. The document states the insurable crops, premium rates, level of coverage, amount of insurance etc.

Farmers and growers review the insurance offer to see if it fits within what they want to insure. Farmers can then proceed to request insurance by applying for coverage.

In the case of multiple peril insurance, applicants must apply and submit documents before the sales closing date as specified on the policy documents. For crop hail insurance, farmers can apply for coverage at any time.

2. Acceptance

The insurance provider accepts completed applications and proceeds to process them. The insurer will then issue the applicant policy documents and a summary of coverage for review.

3. Submission of Reports

Submission of production and acreage reports is followed more in multiple peril crop insurance than in crop hail insurance.

The farmer will submit an annual report on:

  • How many acres were planted
  • The farm location
  • Crops planted
  • Farming practices used
  • Date of planting
  • Varieties planted

4. Summary of Coverage

The insurer issues a summary of coverage. The summary highlights the insured crop, insured acres, premium and amount of insurance.

5. Premium Payment

The insured pays the premium and any other administrative fees, as per the dates and amounts highlighted on the coverage document.

6. Notice of Loss

The farmer notifies the insurer about a loss. The insured should notify the insurer within the time stipulated in the policy documents.

7. Inspection

The insurer receives a written notice of loss and processes the document. The insurer then sends a loss adjuster to assess the extent of loss, cause of loss, time, location and the remaining value after loss. Inspection will enable the insurer to determine how much compensation the insured should get.

8. Compensation

The insurer compensates the insured once he or she is satisfied with the legibility of the claim. The insurer then issues a summary of indemnity payment.

9. Policy renewal

Coverage is continuous unless cancelled by the insurer or the insured.

For more detail about the crop insurance cycle, check here.

Responsibilities of the Insurer

  • Treat insured’s interest like he or she treats his own
  • Fairly and timely investigate claims
  • The loss adjuster should help the insured with his or her claim during an inspection.
  • Pay the claim within the timeline indicated on the insurance policy
  • Give an explanation for denying compensation for a claim
  • Disclose all facts and requirements to the insured

Responsibilities of the Insured

  • Provide required reports and documents
  • Pay applicable premiums and fees
  • Follow the required farming practices
  • Notify the insurer in the event of a loss

Which insurance companies offer crop insurance in Kenya?

  • Kenya Orient Insurance Limited
  • CIC Group
  • UAP Old Mutual
  • Heritage Insurance
  • APA Insurance
  • Africa Merchant Assurance
  • Jubilee Insurance

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