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Insurance firms challenged to raise awareness on Weather Index Insurance

• Insurance penetration in Zambia currently stands at 1.6 %.
• Weather index-based insurance is an attractive approach to managing weather and climate risk.
• There is need for concerted efforts to ensure that farmers are educated on different insurance packages.

Smallholder farmers in Zambia are vulnerable to weather-related shocks such as drought, flooding, as well as irregular rainfall and Insurance can be a good risk management tool for these farmers.
Insurance can be defined as a means of protection from financial losses. It is a form of risk management, primarily used to hedge against the threat of a contingent or uncertain loss.
The obvious and most important benefit of insurance is the payment of losses. An insurance policy is a contract used to protect individuals, business entities and organizations for covered losses. The second benefit of insurance is managing cash flow uncertainty.
And Weather Index Insurance is one of the many types of insurance products being offered by various sector players in the country. It provides an innovative and more efficient solution for farmers to protect their crops against losses and encourage investment.
Weather index-based insurance is an attractive approach to managing weather and climate risk because it uses a weather index, such as rainfall, to determine payouts and these can be made more quickly and with less argument than is typical for conventional crop insurance.
However, lack of adequate awareness on the importance of this sector continues to hamper uptake as insurance penetration in Zambia currently stands at 1.6 % only.
It is in this vain that National Union for Small Scale Farmers in Zambia is calling for concerted efforts from stakeholders and Ministry of Agriculture to ensure that farmers are educated on different insurance packages in readiness for the planting season.
Union Executive Director Ebony Loloji said with the climatic changes the country is experiencing, it is important for farmers to have their crops insured so that they are protected from volatile production as a result of droughts or floods.
“When a small scale farmer insures their crops simply means that even when they are hit by droughts and many other climate events the insurance company will be able to come in and compensate them, meaning that they are going to be restored to their original position before they were hit by the calamity.”
“What is very important is for us as Unions, Ministry of Agriculture, Ministry of Livestock and even the insurance companies to come together and see how best we can educate our small scale farmers on the importance of insuring their production,” Mr. Loloji emphasized.
According to the 2020 Finscope Survey, the number of people that do not know insurance decreased to 40.9 percent from 80.1 percent in 2015, while insurance uptake had increased to 5 percent from 2.8 percent.
While the figure is above the African average that currently stands at approximately 2.9 percent, it is still below the National Financial Inclusion Strategy target of increasing insurance uptake to 15 percent by end of 2022.
For Pensions and Insurance Authority (PIA), low insurance uptake implies that there is a huge protection gap, leaving households and businesses vulnerable to shocks triggered by pandemics like Covid-19, hence the importance of having consumer education activities such as the insurance week.
Money FM News recently caught up with PIA Communications Manager Doreen Silungwe who explained that Weather Index Insurance plays a key role in risk mitigation especially with regards to addressing climate change challenges farmers face.
Mrs. Silungwe said there are two broad types of Weather Index insurance on the market one being input, which covers germination failure, while the other one is yield insurance.
Her comment came in the wake of calls by Centre for Environment Justice (CEJ) Head of Research Freeman Mubanga on the need for insurance companies to timely compensate farmers registered on the Weather Index Insurance, as those in Southern Province, which recorded erratic rainfall were still waiting for a clear road map from firms providing this product on when they will be compensated.
But Mrs. Silungwe pointed out that the type of insurance in Southern Province where stakeholders are calling on insurance companies to timely compensate farmers registered under Weather Index insurance is a yield based insurance cover.
She said under this type of insurance, farmers can only be compensated once they have finished harvesting and their losses have been quantified by the insurance company.
“The harvest period according to this policy ended on 30th June and the insurance company is expected to move in to quantify the losses and make the payouts accordingly. So I would say that this is largely a misunderstanding of the product,” Mrs. Silungwe said.
Mrs. Silungwe urged insurance companies in the country to educate farmers on the policies that they are offering to avoid misinformation.
“It is important that the policy holder understands the terms and conditions including any other obligation attached to the policy, their consumer rights, and the total payment that is expected in terms of a loss. It is also important that the policy holder understands the claims procedure, when it kicks in and what they need to present to the insurance company in order to get a payout,” she added.
According to the CEJ Head of Research, some farmers will find it challenging to adopt the Weather Index Insurance innovation if insurance companies are not proactive in compensating them timely because those under the Farmer Input Support Program (FISP) contribute K100 towards this insurance product.
“CEJ has noticed that there is a delay in service delivery when it comes to compensations of inputs and other products that fall under this service. Therefore we are urging all insurance companies that are offering such insurance products to farmers that they should harness their service delivery to ensure that more farmers can understand that learn from farmers that are registered on this brilliant initiative,” Mr. Mubanga advised.
He however stated that companies providing Weather Index Insurance must be commended as the move is a mitigation measure against the effects of climate change.
On the other hand, one of the farmers talked to by Money FM News expressed ignorance on Weather Index Insurance as no one has taken time to explain what this product is all about.
Nicholas Kapila, a Kabwe based farmer said he was willing to insure his crops provided he is adequately educated on the importance of buying this insurance product.
Weather Index Insurance is an innovative approach to managing climate related risks using a pre-defined index, such as rainfall, to determine pay-outs which help smallholder farmers to recover their investment losses resulting from weather related events.
In 2018, Ministry of Agriculture contracted Mayfair Insurance Company Zambia Limited to develop insurance products that can be bundled together with the government input subsidy package under the Farmer Input Support Program (FISP).
During the 2018/2019 season, Mayfair Insurance and the World Food Program (WFP) collaborated to provide insurance coverage to 7,794 farmers.
Many parts of the country were affected by moderate to severe drought, as a result of which approximately 2 million Zambians were brought to the brink of starvation (BBC, Lifegate) and Mayfair paid a claim of K 5,514,270 to all the farmers that were insured through WFP.
And in an effort to protect livestock farmers from financial losses that arise due to theft, Ministry of Fisheries and Livestock recently launched Inclusive Livestock Insurance Project in Mazabuka distroct, Southern Province.
The launch of the inclusive livestock insurance was as a result of collaborative efforts from the Ministry of Fisheries and Livestock, Financial Sector Deepening (FSD) Zambia, and Mayfair Insurance among others.
The project will be piloted in Mazabuka, Choma and Kalomo Districts.
It is therefore important to raise awareness on available insurance packages on the Zambian market because risk awareness helps individuals to make appropriate choices when considering what Insurance products meet their needs.

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