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A comprehensive IBI Law: A reprieve for the agricultural sector in the wake of unpredictable weather patterns

Additionally, the government through the Ministry of Agriculture, Livestock, Fisheries and Cooperatives should spearhead innovative ways to cushion farmers in such trying times. One of these ways is through the mainstreaming of agricultural insurance and in particular, the Weather Index Insurance (WII) which forms the substratum of this article.

Climate change and the unprecedented drought

Climate change has been dubbed as the greatest existential threat of our time.[1] Climate Change simply refers to the long-term shift in atmospheric temperatures and weather patterns. [2] This shift that has been extensively exacerbated by human activities involving the emission of greenhouse gases (GHGs).[3] These gases are emitted from activities such as burning of fossil fuels, deforestation, energy industries, manufacturing, construction, agriculture, waste and many other activities.[4]

The effects of climate change are now more remarkable in our age than before. Ranging from hurricanes to unprecedented flooding, erratic rainfall to prolonged droughts. This has resulted in untold suffering and pain. One of the most gravely affected areas is the agricultural sector. The unpredictable weather patterns continue to destroy farming assets resulting in colossal losses in income. This state of affairs has worked to discourage investments in agriculture. 

Our papers today are replete with images of starving Kenyans staring at death. Droughts have increased in frequency and magnitude. Smallholder farmers have been hit hard. Helplessly, they have watched their crops wither while livestock becomes emaciated to bones and dropping dead.[5] Those zones, once considered to be semi-arid, now face the danger of becoming arid. They have become so dry that no agricultural project can be thought for them.[6] As a result, many farmers who relied on rain-fed agriculture have been forced to find other sources of livelihood.[7]

As the climate calamity escalates and critical resources dangerously thin out, there is thus a pressing need for urgent and innovative solutions to help contain the situation.

The Kenyan economy, agriculture and climate change

The economy of Kenya is primarily dependent on agriculture.[8] This sector contributes significantly to national income, export earnings, rural employment and non-farm enterprises. However, due to climate change, agricultural yields have been dwindling at an alarming rate. The situation is even made worse on the account of the fact that the sector is highly dependent on rainfall.[9] It therefore goes without saying that an increase in drought greatly translates into massive crop failures consequently adversely affecting food security and the economy in general.[10]

Of the numerous challenges facing the agricultural sector, inadequate insurance facilities to cushion farmers and fisherfolk from climate-related risks tops the list. These risks act as a disincentive for further production eventually reducing incomes and foreign exchange earnings leading to reduced long-term productive investments in agriculture. Therefore, addressing this need and overcoming the limitations of traditional agricultural insurance, in particular high transaction and loss assessment costs, requires new and innovative insurance products to be developed.[11]

Solution: Weather Index Based Insurance

As we continue to face this prolonged ravaging drought, however, there is hope. Weather Index Based Insurance can really prove to be a long-neglected magic bullet. It will be of tremendous advantage to farmers now affected by unpredictable weather changes because pay-outs are determined using measured variables such as rainfall and temperature.[12]

IBI defined

Index-Based Insurance (IBI) is defined under Section 2 of the Insurance Act to mean an insurance contract under which the liability of the insurer to make a payment to the policyholder is triggered by, and the amount of that payment is determined in accordance with, one or more indices, rather than on an assessment of the policyholder’s actual loss.

Weather index insurance (WII), a type of IBI, is a relatively new type of financial risk transfer product, which could help to overcome some of the problems with traditional insurance schemes. Unlike indemnity-based crop insurance, where an insured farmer receives compensation for the verifiable loss at the end of the growing season, WII makes claim payments based on the realization of an objectively measured weather variable (e.g., rainfall) that is correlated with production losses.[13] It is thus more advantageous as opposed to conventional crop or livestock insurance which is normally costly due to the field assessment costs.[14]

How it works

The essential feature of WII is that the insurance contract responds to an objective parameter (e.g. measurement of rainfall or temperature) at a defined weather station during an agreed time period. The parameters of the contract are set to correlate, as accurately as possible, with the loss of a specific crop type suffered by the policyholder. All policyholders within a defined area receive pay-outs based on the same contract and measurement at the same station, eliminating the need for in-field assessment.[15]

The pay-outs are based on an easy-to-measure index of factors, such as rainfall or average yields, that predict individual losses. Accordingly, WII is an attractive risk-management tool in developing countries such as Kenya where the fixed costs of verifying claims for a high number of small farms make conventional insurance too expensive.[16] There are two main types of IBI: Area yield index insurance (AYII) and Weather Index Insurance (WII).

Area yield index insurance (AYII). Here the pay-out is based on the realized average yield of an area such as a county or district, not the actual yield of the insured party. The insured yield is established as a percentage of the average yield for the area. A pay-out is made if the actual yield for the area is less than the insured yield regardless of the actual yield on a policyholder’s farm.

Weather Index Insurance (WII). Here the pay-out is based on realizations of a specific weather parameter measured over a pre-specified period of time at a particular weather station. The insurance can be structured to protect against index realizations that are either so high or so low that they are expected to cause crop losses. A pay-out is made whenever the realized value of the index exceeds a pre-specified threshold (for example, when protecting against too much rainfall).

It is quite evident that climate change is one of the defining issues of our age. The effects thereof are open for all to see. Unpredictable weather changes such as flooding, prolonged rainfall, and erratic weather patterns are some of the consequences thereof that have ravaged the agricultural sectors, particularly in the African continent. Since the agricultural sector is the most vulnerable sector, IBI has been seen to be among the most appropriate tools for cushioning farmers against such eventualities.

The Kenyan experience

The insurance market in Kenya is governed by the Insurance Act administered by the Insurance Regulatory Authority (IRA) (Government of Kenya 2017). The authority also provides consumer education, facilitates public-private partnerships and advises the government on how to improve subsidized schemes. [17]

IR has been instrumental in promoting IBI in Kenya. Several pilot projects to introduce WII have been implemented with technical support from the World Bank and other development agencies. For instance, Kilimo Salama, which was launched by the Syngenta Foundation for Sustainable Agriculture, is the most widely known and successful out of these projects. Kilimo Salama was started in 2009 as a small initiative with only 200 farmers. By 2013, the project covered close to 200,000 farmers in Kenya, Rwanda, and Tanzania, with a total sum insured of 12.3 million US dollars.

While this growth within a few years is impressive, it cannot mask the fact that up till now only a small fraction of farmers have adopted.[18] Despite agricultural insurance laying an integral role in agriculture, the same seems to have been neglected by the government of Kenya. Apart from the definition given under the Insurance Act, it appears nowhere else appear in the agricultural laws and policies. It is therefore quite surprising that such as key factor could miss out, especially in the recently enacted agricultural policy.

One of the remarkable moves towards streamlining IBI in Kenya was through the 2017 amendment to the Insurance Act in Section 2 by defining the terms “index-based insurance” and “Micro-insurance,” These amendments were meant to allow for the issuing of regulations on index-based insurance and micro-insurance business.[19]

Challenges facing IBI in Kenya

First, IBI schemes struggle with an absence of data. For instance, data on rainfall and crop yields are needed to develop indices and monitor risks. Therefore, for the IBI schemes to work smoothly, efficient and reliable weather stations need to be established.[20]

Secondly, most farmers especially the small-scale farmers are not aware of these IBI concepts. This accounts greatly for the low intake of IBI products.

Thirdly, there is no comprehensive any legal or policy framework governing IBI in Kenya. Part from the definition of the IBI under section 2 of the Insurance Act, there is no other law or regulation setting out how the IBI ought to be administered. The IBI policy paper release by the IRA in 2015 recommends issuance of regulations under the Insurance Act to stipulate how the IBI should be administered. This recommendation is yet to be implemented.


There is an urgent need to formulate and release IBI Regulations under the aegis of the Insurance Act CAP 487. Also, the Agriculture and Food Authority Act no. 13 of 2013 needs to be amended to authoritatively provide of Agricultural Insurance as an integral part of the sector. Additionally, the failure to adequately include Weather Index-Based Insurance in the recently formulated Agricultural Policy is visibly a missed opportunity. Future agricultural policies and action plans should include and promote Agricultural Insurance and particularly the IBI.


Frequent weather extremes are also associated with risk-avoidance strategies, such as low uptakes of productivity-enhancing inputs and technologies. Thus, climate shocks can cause and perpetuate poverty traps in the small-farm sector. Agricultural insurance could help, but it is literally non-existent in most developing countries due to institutional constraints, including high transaction costs and issues of moral hazard and adverse.[21]

Weather Index Based Insurance is the panacea for the ailing agricultural sector in such times of climate change and unpredictable weather patterns as it is based on objective parameters. The government should be proactive in promoting climate mitigation tools and as can be gleaned from above, Weather Index Insurance needs to be promoted and fostered as it is still in its infancy.

Barongo Nyamari is an LLB student at JKUAT Karen

[1] Courtney Lindwall, ‘What are the effects of Climate Change?’ (24 October 2022, NRDC) <> accessed 15 February 2023

[2] United Nations, ‘What is Climate Change?’ (United Nations, Climate Action) <> accessed 31 january 2023

[3] Greenhouses Gases (also known as GHGs) are gases in the atmosphere that trap heat and thus radiating it to the earth thus contributing to the greenhouse effect. These gases include methane, carbon dioxide, nitrous oxide and others. See substantive definitions; Britannica, ‘Greenhouse gas’, <> accessed on 31 January 2023. additionally, the Kyoto Protocol under Annex a lists greenhouse gases which are Carbon Dioxide (c02), Methane (ch4), Nitrous Oxide (n20), Hydrofluorocarbons (hfcs), Perfluorocarbons (pfcs) and  Sulphur hexafluoride (sf6).

[4] Kyoto Protocol 1997 annex a on source categories.

[5] James Kahongeh, ‘Can we climb out of this hole? The climate crisis of our times’ Daily Nation (Kenya, 1st November 2022) <> accessed 15 February 2023

[6] KARI, ‘The major challenges of the Agricultural sector in Kenya’ (Kenya Agricultural research institute) <> accessed 16 February 2023

[7] Ibid (n 5)

[8] Ministry Of Agriculture, Livestock, Fisheries And Cooperatives Agricultural Policy  2021

[9] Otieno Omondi, ‘Effect of Climate Change on agricultural productivity in Kenya’ (March 2019, Master of Economics: Kenyatta University)

[10] Ibid (n 9)


[12] Berber Kramer, ‘Can weather index insurance help farmers adapt to climate change?’ (13 December 2019, international food policy research institute) <> accessed 16 February 2023

[13] Kenneth Sibiko et al, ‘Small farmers’ preferences for weather index insurance: Insights from Kenya’ (Springer Nature) Article available at: <> accessed 16 February 2023

[14]  The Kenya index-based insurance Policy Paper by the Insurance Regulatory Authority. (12 June 2015)

[15] Ibid (n 14)

[16] MRR Innovation Lab, ‘How agricultural index insurance can promote risk management and resilience in developing countries’ (University of California and Feed the Future: The U.S government’s Hunger & Food Security Initiative) <> accessed 16 february 2023

[17] Joab Osumba & 5 others, ‘State of index-based crop insurance services in East Africa: Findings from a scoping study to establish the state of index-based crop insurance services in Kenya, Tanzania and Uganda ’ (November 2020) The report can be downloaded at: <> accessed 16 February 2023

[18] Ibid (n 13)

[19] Insurance Act (amendment) act no. 11 of 2019

[20] Ibid (n 12)

[21] Ibid (n 13)

Guest author The Platform Magazine