How Climate Change Will Affect Insurance Uptake In Kenya

Climate change has transcended its status as a distant concern, asserting its presence in the very fabric of our lives. In Kenya, the ramifications of this global phenomenon are felt deeply, with the increasing frequency and intensity of extreme weather events such as floods, droughts, and storms.

A 2021 report by the Kenya Meteorological Department shows that temperatures continued to rise in the year 2020, which were longer than the long-term averages, leading to floods and landslides in areas such as West  Pokot, attributed to changes in climatic conditions.

Amidst these challenges, a subtle but significant impact is emerging – the evolving landscape of insurance uptake in the country. As climate change reshapes the risk landscape, the insurance industry in Kenya must adapt to remain relevant and effective in providing financial protection to its citizens.

Kenya’s vulnerability to climate change-induced events is evident through the escalating frequency of disasters, which not only disrupt livelihoods but also reveal the inadequacies of traditional coping mechanisms. For instance, floods and droughts damage property, devastate crops, and lead to displacement, causing immense economic losses for individuals and communities.

A report by the Alliance for Science underscores this, revealing that the 2021 rains led to flooding that compromised food security in five counties. The floods affected over 4,700 acres of agricultural land across counties like Tana River, Kisumu, Busia, and Migori, leaving residents without food and shelter for the first time since 1963. Such losses emphasize the necessity for a robust insurance sector capable of providing prompt compensation and assistance to those affected.

Indeed, climate change is prompting a shift in how risk is perceived with traditional risk models based on historical data being unreliable in predicting the scale and frequency of climate-related events. Consequently, insurers face the challenge of accurately pricing premiums and assessing risks in a dynamic environment. This uncertainty can discourage potential policyholders from seeking coverage, fearing inadequate compensation when disaster strikes.

However, the insurance industry has a pivotal role to play in mitigating the impacts of climate change. Insurers in Kenya are recognizing the need to innovate and create tailored insurance products that cater to evolving risks.

Notably, parametric insurance is gaining traction – a form of coverage that triggers payouts based on pre-defined thresholds such as rainfall levels or wind speeds. This type of insurance eliminates lengthy claims processes and provides quicker payouts, offering a lifeline to affected individuals and businesses. A case in point is ACRE Africa, which, as of September 2020, had insured more than 1.8 million farmers across Kenya, Tanzania, and Rwanda under parametric insurance, underscoring the significance of this risk solution.

With the challenges posed by climate change being too formidable to be addressed by a single entity, this calls for a collaborative approach amongst various stakeholders. Governments, insurance companies, and civil society must collaborate to enhance climate resilience. Governments can play a crucial role by implementing policies that incentivize both insurers and individuals to embrace climate-smart insurance options. Insurance companies, on the other hand, can work to educate the public about the importance of coverage and the changing risk landscape.

A significant barrier to insurance uptake in Kenya is the lack of financial literacy, particularly in rural areas. Many individuals are unaware of the benefits of insurance or how it works. As climate change amplifies the need for financial protection, there is a compelling case for investing in education and awareness campaigns. By imparting knowledge about insurance and its relevance in the context of climate change, more Kenyans can make informed decisions about their financial security.

In conclusion, climate change is not a distant threat; it is a reality reshaping lives and economies worldwide. In Kenya, the insurance industry must embrace its transformative potential, adapting to the changing risk landscape and innovating to provide effective solutions. As extreme weather events become more frequent and severe, the demand for insurance coverage that offers swift and comprehensive support will only grow.

Collaborative efforts among stakeholders, coupled with investment in financial literacy, can pave the way for a resilient future where climate change impacts are met with financial stability and security. The time to act is now – for individuals, businesses, and the nation at large.

Read Also: Fight Against Climate Change Calls For Significant Collaboration

The writer, Carolyne Nekesa, is the Head of Marketing at Minet Kenya.