1. What is needed to make agriculture Insurance initiatives widely available to farmers in East Africa Isaac Magina December 6 th 2012

2. Over 80 years in the Kenyan market Regional presence Kenya 10 branches, 10 satellites Uganda Kampala and 4 major towns South Sudan Plans to enter other countries in region TZ, RW DRC, Zambia and Ghana Business Lines LifeGeneral Medical insurance Financial services UAP Holdings: 5 subsidiaries UAP Insurance - Kenya UAP Life - Kenya UAP Insurance Uganda UAP Insurance South Sudan UAP Financial Services - Uganda About UAP

3. Financial strength Over USD 71 million premiums (among top 3 in EA) General business Kenya USD 46 Million (among top 3) Total assets over USD 142 Million Net assets USD 56 Million – among top 2 in EA Vast Underwriting Capacity – strong re-insurance.Credit Rating AA- highest in EA1 st ISO certified – recertified 3 times – now to the latest standardIFC/FT 2012- Technology in Sustainable Finance; Kilimo SalamaInnovation, InnovationSince 2006 We have been offering Agriculture insurance products

4. Why Agriculture Insurance? In the midst of catastrophes!

5. Importance of Agriculture Agriculture is an important economic sector and a source of livelihood in many developing countries. Majority of rural households in the region depend on agriculture to earn a living Agriculture can contribute to faster growth and reduction in poverty levels. GDP growth in agriculture is more effective in reducing poverty compared to non-agricultural GDP growth Effective risk management models in agriculture contributes to an increase in agricultural productivity. Farmers can invest in new farming technologies once they are sure that their investments are secured.

6. 6 Agriculture production volatility While climate change scenarios can be predicted, it is difficult to forecasts future volatility in i.e. production or animal disease trends. Volatility is a key element in the agriculture insurance; Risk profiling has a high impact on future premium rates Research Improved technology Extension Servies Finance yield/ha time Climate change Lack of water Soil degradation

7. Some of our projects in the past five years Index based Livestock insurance-IBLI Pilot project to insured pastoralist in Marsabit County Northern Kenya in partnership with the International Livestock Research Institute and Equity Bank Index based Crop Insurance Initiative- Kilimo Salama In partnership with Syngenta Foundation for Sustainable Agriculture, Currently insuring over 65,000 small holder farmers in Kenya and Rwanda East African Barley Crop Insurance scheme Crop insurance scheme for contracted barley growers in 2010/11 crop season

8. Some of our projects in the past five years Sugar Cane Fire Insurance Scheme In partnership with the Kenya Sugar Board and Agriculture Finance Corporation Kenya Commercial Bank Livestock Insurance Scheme. Livestock insurance for all dairy development loans advanced to KCB customers Tobacco Crop Insurance Schemes, Crop insurance cover for farmers contracted by the major tobacco processing companies

9. What we have found out ?

10. Farmer’s trust in insurance needs to be built Survey of farmers who received a pay-out showed clearly that until pay-out, farmers do not trust insurance Eunice Wamaitha, 1 Acre insured What did you think about insurance before the payout? I thought they might not pay, our friends told us after the training that we were being lied to What did you think about the insurance after the payout? I was happy and told others I have been paid Low retention levels even where a payout has been made in retail accounts and High retention rates in Corporate accounts tend to have high. Farmer education key in managing expectations

11. Training is key to uptake and satisfaction Judging by their questions, farmers can understand insurance: What if it doesn’t rain on my field and it rains at the station, do I then receive a payout? 92% of farmers who buy insurance are trained about insurance Timely compensation is key: Farmers expect payout as soon as the contracts ends Payouts were made within 2 weeks after contract ended

12. Affordability is key: willingness vs ability to pay Insurance in high risk areas is expensive: No premium subsidy schemes, Schemes that pay upfront on behalf of the farmers tend to be successful. Higher uptake of insurance in commercial farming compared to subsistence farming systems. Farming as a business is a driver to insurance uptake. Need to target farmer groups to reduce transaction costs and improve efficiency in contract monitoring

13. Unique distribution models Assumptions; Input retailers are willing to distribute insurance; but the product has to be simple. The input retailer is one of the closest advisors to a farmer Input retailers; competition between crop protection product margins and insurance commissions Selling insurance through farmer group, aggregator institutions, cooperative societies has potential to reduce transaction costs and increase uptake; Regulatory approvals for alternative distribution channels.

14. Key Lessons-General Product training Farmers are excited but skeptical about insurance Generally low uptake insurance products less that 2.5% Marketing and distribution channels Existing distribution channels (i.e. brokers, agents etc) are not used to dealing with farmers (large & small). There is a perception that Agriculture insurance is complicated to sell.

15. Key Lessons-General The Product Indemnity based vs Index Insurance Products. Livestock insurance indemnity vs Index based Adoption of suitable weather proxies for agric risks e.g. NDVI, CCD or ET indices Weather data/ infrastructure Insufficient historical weather data, small number of automatic weather stations and weather data analysis. Role of Meteorological services; business vs regulatory

16. players in agriculture insurance market. Farmers and farmer organization ; need to understand attributes and benefits of agriculture insurance products Insurance company ; caries the risks and product development champion. Re-insurance; support in product design, market development, global experience and carry the risk Insurance distribution- Brokers, Agents, Baccasurance, Farmers association and co-operative societies Financial institutions; banks, micro finance, development banks-to provide agri-credit and pre-finance premiums Development agencies; non governmental organizations in product development and marketing Government and Government agencies ; policy formulation, regulation, market development and insured Research institutions : product design, service providers

17. models of government support to agric insurance Number of Players Product Diversification Fully Intervened System Fully Intervened System Public– Private Partnership Public– Private Partnership Pure Market Based Pure Market Based Normally High Penetration (compulsory) Well Diversified Portfolios Social over Technical criteria Monopoly. Issues with the service Government assumes full liability Normally High Penetration (compulsory) Well Diversified Portfolios Social over Technical criteria Monopoly. Issues with the service Government assumes full liability High Penetration Well Diversified Portfolios Technical over commercial criteria Competition for service Government adds stability to the system Private Sector adds “know how” High Penetration Well Diversified Portfolios Technical over commercial criteria Competition for service Government adds stability to the system Private Sector adds “know how” Low to moderate penetration Low risk diversification Commercial over technical criteria Competition for price Low to moderate penetration Low risk diversification Commercial over technical criteria Competition for price Level of Government Intervention

18. UAP, Bishops Garden Towers, Bishops Road, PO Box 43013-00100, Nairobi, Kenya. Tel 2850000, Fax 2719030, E-mail uapinsurance@uapkenya.com www.uapkenya.com