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IPEC urges farmers to adopt index insurance

Malvern Nkomo

Business Reporter

THE Insurance and Pensions Commission (IPEC has implored farmers to adopt index-based insurance to secure their crops and complement the risk cover provided by the government initiated climate impact mitigation scheme, Pfumvudza/Intwasa programme.

IPEC Commissioner Dr Grace Muradzikwa made the call at the Insurance and Pensions retreat for Africa 2023 in Harare on Wednesday.

Index-based insurance, also known as index-linked insurance or, simply index insurance, is a type of insurance cover primarily used in agriculture where payouts are related to an “index”, which is closely correlated to agricultural production losses, such as one based on rainfall, yield or vegetation levels.

“We are encouraging farmers to take up insurance, particularly index insurance, which is one of the focus areas of this conference such that depending on the level of rain, farmers can get compensated in relation to the yields that they get as a result of less rainfall or above average rainfall.

“At a country level, Zimbabwe has taken parametric insurance for drought insurance. 

“The Government is providing the inputs for the pfumvudza/intwasa project and previously if there was a drought, all that is invested would disappear and the Government would have created fiscal space where funds are taken from the Government coffers to fund the projects.

“However, when the investments are insured, in the event of a drought, farmers are able to re-plant without having to get back to the Government. The Government, in a way, is also making sure that at least there is resilience from the farmers,” said Dr Muradzikwa.

She pointed out that political risk insurance coverage remained unpopular in Zimbabwe during the post-election period, as compared to riot cover, which has seen an increase in uptake.

“Political risk Insurance is still very much in its infancy here in Zimbabwe. The cover is there but the take-up is low. What we have seen to be increasing in uptake is riot cover, which is not political risk cover.

“Perhaps, I think, it’s informed by the fact that Zimbabwean elections are generally peaceful and I think maybe that is affecting the uptake of political risk insurance,” she said.

Political risk Insurance offers financial protection to institutions and businesses that face the possibility of losing money because of political events such as political violence whereas riot insurance, also known as Civil Commotion Insurance, covers institutions from damage caused by non-political violence caused by a group of people or a mob.

Finance and Economic Development Minister Professor Mthuli Ncube said in a briefing to journalists at the same event “Many of our people are underinsured or uninsured at all and it is very important that regulators understand that they have a mandate of bringing everyone into the insurance sector to manage risks.

“Africa remains desperately underinsured, with an average insurance penetration of 2,7 percent in 2022 against a global insurance penetration of 7 percent.

“If the insurance industry is to support Governments in attaining the 2030 Sustainable Development Goals (SDGs), more needs to be done to reach out to the uninsured and those who are informally insured in our African Markets. Thus, the issue of financial inclusion is not just a national agenda but also a regional and global agenda,” he said.

“Going forward, as the Government we are going to introduce, of course working with the regulators, insurance for small-scale agriculture and those that are into Pfumvudza/Intwasa to make sure they are insured from climate change, making sure no one is left behind.

“Insurance and social protection mechanisms play a key role in insuring real sectors of the economy, individual lives and have an unparalleled capacity to pool long-term savings for economic development,” said Professor Ncube.

Pfumvudza/Intwasa, a climate-proofed input scheme initiated by the Second Republic, is a form of inclusive insurance scheme.