Unpacking Climate Risk Insurance

By Francis Maina

Last July was the second hottest month on record for the globe with scientists marking 2023 as the hottest on record that could usher in the eventual return of the El Nino weather phenomenon come 2024.

In Kenya, experts are calling for more caution. On August 23, 2023, a local publication quoted Kisumu County Climate Change Director, Evans Gichana saying, “Climate change portends a grim future for Kenya and is a wake-up call for all of us to take urgent action to mitigate the effects of climate change.”

To illustrate this further, Northern Kenya has witnessed severe droughts that have caused loss of life and livelihoods. Western Kenya, on the other hand, has suffered floods that have resulted in dislocation of populations, damage to livelihoods, and loss of farmlands. All these calamities contributed to severe drop in harvests in turn hurting Kenya’s ability to feed its own people. This has in turn forced the country to bring in food imports to bridge the deficit thereby placing an additional strain on the country’s foreign exchange reserves.

With most climate-related catastrophes becoming regular, it is important to find an effective way to mitigate the risks, especially a solution that helps affected sectors to bounce back. This is best handled by climate risk insurance. Climate risk insurance involves providing insurance cover that not only addresses the immediate aftermath of climate-related disasters but also proactively meet the financial burdens they impose in times of calamities such as floods, drought, earthquake, as well as crop and livestock diseases.

Under climate risk insurance, insurance companies work with policyholders to reduce the likelihood and severity of such events. Insurers achieve this by encouraging policyholders to invest in infrastructure and practices that are resilient to the impacts of climate change. For example, a business might be prompted to build structures that can withstand stronger storms or install systems to manage increased water levels.

Another example of how climate risk insurance has been used to mitigate such risks and enhance community resilience in the face of climate risks is the launch of the Kenya Livestock Insurance Program in 2015. The program was implemented in six counties that include Turkana, Wajir, Marsabit, Isiolo, Mandera and Tana River counties. In 2017 alone, the program disbursed a total of KSh. 494 million to support affected pastoralists. These disbursements played an important role in enabling farmers to procure essential resources such as animal feed, medications, and water for their livestock thereby saving their livestock from imminent death.

Additionally, with the review of the Crops Act 2013, crop development, pest and disease control, climate change resilience and establishment of crop insurance have been given prominence while the Livestock Policy, 2020 advocates for increased access to insurance by value chain players to mitigate against inherent risks in livestock production systems. This cover is important for farmers to mitigate the impact of threat ensure the resilience and sustainability of farming practices and livelihoods.

As interest in microinsurance products to mitigate climate change gains momentum, private insurance providers have in the process found ways to enhance interaction between livestock keepers and livestock experts with a view to encouraging their active participation in commercial livestock keeping.

It is thus clear that mitigating the impact of droughts and floods through climate risk insurance necessitates not only short-term emergency responses but also long-term resilience-building efforts such as investment in water management, drought-resistant crops, improved irrigation systems, early warning systems, and disaster preparedness.

Understandably, there is a need to create awareness on climate risk insurance. Through transparency, accessible information, and a commitment to risk reduction, insurers can pave the way for a strong climate risk insurance system that empowers individuals and communities to navigate the challenges of a changing climate with confidence while breaking the cycle of vulnerability.

The writer is General Manager – Minet Risk Services (Corporate) at Minet Kenya