Agriculture remains mostly neglected but has potential that insurers are yet to tap, according to various speakers who attended the 44th African Insurance Organization (AIO) conference held at Speke resort Munyonyo recently.
The conference came at a time when farmers were facing a tough time with widespread crop failure and livestock decimation due to prolonged drought. Media reports have indicated that up to 10 million Ugandans face starvation.
Rahab Kariuki, the managing director of Africa and Climate Risk Enterprise (ACRE), said most African countries are doing little to diversify the sector with 80 per cent of farmland still managed by smallholder farmers.
"Some 75 per cent of the world's food is generated from only 12 plants and five animal species, making the global food system highly vulnerable to shocks," Kariuki said.
Last December, the ministry of finance released a $1.9 million (Shs 6.8bn) subsidy meant to help boost uptake of agricultural insurance and save farmers from losses related to weather conditions.
However, insurers were cautious to provide cover after projections of a likely poor harvest at the beginning of 2017. Agriculture remains one of the riskiest ventures for insurers, especially in Uganda where most farmers depend on archaic methods to grow crops. Consequently, many insurers choose to stay away.
The sector faces challenges like low insurance uptake and bad perceptions, affordability, insufficient data on crop varieties and poor product designs, among others.
Shadrack Mapfumo, senior financial sector specialist at the World Bank, said insurance companies should invest more money in crop varieties such as maize, arguing that this would help secure farmers from poor harvests.
"Even that crop variety that insurance companies say is not insurable, [it can be insured] only that because they [insurers] have not studied it. We need to find ways of contributing to the reduction of risk," Mapfumo said.
An agricultural risk assessment carried out in 2015 estimated that the country loses between $606 million and $804 million annually due to pests, post-harvest losses and diseases in crops and livestock. Losses resulting from drought alone peak at $44 million, the study says.
Three quarters of Ugandans are employed in the agriculture sector. They hardly access finance as only about 10 per cent of the banking sector channels their lending towards the sector. The 2014 National Census said 69 per cent of Ugandans were stuck in subsistence farming.
A 2016 International Monetary Fund report said improved access to cost-effective financial risk transfer instruments, such as insurance, is a crucial measure to boost the ability to hedge against weather-related shock events.
Kariuki suggested that ICT and the data revolution can be harnessed to improve index insurance to capture the risks that tend to push insurance companies away from providing cover to certain groups.
Ibrahim Lubega Kaddunabbi, the chief executive officer at Insurance Regulatory Authority (IRA), said Uganda was slow at developing online products due to lack of a guiding policy framework to protect insurers from fraud.
"We also need to work on the fraud to make sure that people are not cheated because there might be those who are correctly selling and impersonators," Kaddunabbi said.
Insurance penetration in Uganda remains dismally low - at less than one per cent - compared to its peer Kenya, which is above three per cent.
Source - http://allafrica.com
