THE combination of adverse growing and market conditions has shown the importance of agriculture insurance and agriculture value chain insurance. With farmers witnessing their investments go down the drain, farming insurance can provide them with the much-needed financial protection. Agriculture insurance plays a critical role to help mitigate the impact of losses that farmers may encounter in their business.
Over the last decade or so, the agriculture sector has been exposed to weather-induced losses caused by extreme weather patterns such as hailstorms, cyclones, dry spells and floods.
But what is farming or agriculture insurance and how does it benefit farmers?
Farming insurance is broad and covers categories such as crop, animal, farming infrastructure and equipment among others. Losses covered are not limited to natural disasters, but decline in prices of commodities. In Zimbabwe, the main consumers of agricultural insurance are commercial and contract farmers.
The appetite for farming insurance especially among smallholder farmers has been low. The possible reasons for low take-up among farmers include lack of awareness and knowledge on benefits. According to Insurance industry regulator, IPEC, in the first quarter of this year, farming insurance accounted for 3,35 percent of the Gross Premium Written compared to 2,13 percent recorded during the same period in 2020. Although there is a slight increase, this remains a low percentage for an agro-based economy.
The Insurance Council of Zimbabwe, an association of short-term insurers offering crop insurance, says despite agriculture being a major contributor to the Zimbabwe economy, the uptake of the insurance remains subdued due to different factors.
“Lack of insurance products that address the needs of smallholder and subsistence farmers who are the majority in Zimbabwe.
“These smallholder farmers are also heavily relying on traditional self-insurance in risk and loss management.
“Above all, the thin profit margins in the sector particularly for small scale commercial and subsistence farmers as well as a lack of knowledge on the benefits of insurance and risk management services.”
Agricultural insurance enhances the growth of the sector and ensures food security as the farmers are motivated to venture into new farming methods.
On the other hand, a lack of affordable and competitive insurance products has not done much to convince the farming community on the importance of agriculture insurance.
However, it is envisaged that the coming of AFC Insurance will provide a risk mitigation mechanism and allow farmers to manage their yield and price risks.
Speaking at the launch of AFC Holdings earlier this year, President Mnangagwa said; “Through the insurance company, farmers must also be able to access affordable financial products and services, targeted at mitigating the effects of global warming and other risks, for resilient and sustainable agricultural production”.
The development of products that speak to the needs of smallholder farmers should be the launchpad. IPEC said it continues to encourage the industry to develop products that meet the needs of consumers.
“The Commission also has in place a micro-insurance framework, which has relaxed registration requirements. This class of business caters for players intending to offer microinsurance products that talk to the needs of the low-end market, which traditionally include smallholder farmers.
“We continuously engage with stakeholders to ensure improved access to insurance with a special focus on agriculture.”
On the awareness front, there is need to educate farmers on how to effectively make use of insurance and risk management for their farming operations.
Insurance brokers can help farmers by demonstrating how they can leverage insurance to reduce exposure to losses.
LA Guard Insurance Brokers Managing Director Mr Artwell Marimira said farmers need to cushion their operations from several unpredictable challenges such as fluctuating world prices and protectionism policies in various markets.
Mr Marimira added that to improve uptake of crop insurance provision of affordable crop insurance products, improving accessibility of insurance products to farmers and encouraging contractors to purchase insurance cover on behalf of farmers must be prioritised.
Agriculture insurers can leverage technology to offer their services to farmers. IPEC said insurance companies can join hands with agriculture platforms and technology-innovation companies to enhance agricultural practices and reduce farmer losses.
This helps farmers to understand the latest technological advancement and improve their crop production. Farmers can use forecast methodology to understand climate and weather change to protect their crops.
The Commission is looking at developing a regulatory framework for weather index insurance to guide the insurance industry on weather index insurance and policyholder protection.
Word from the market is a column produced by the Agricultural Marketing Authority (AMA) to promote market driven production of agricultural crops. ICZ, LAGUARD INSURANCE BROKERS and IPEC contributed to this article. Feedback firstname.lastname@example.org or email@example.com