Kenya's vulnerability to climate change is no longer a distant concern. The escalating frequency of disasters, which not only disrupt livelihoods but also reveal the inadequacies of traditional coping mechanisms are the clearest evidence.
A recent report by the Alliance for Science underscores this, revealing that the 2021 rains led to flooding that compromised food security in five counties.
Over 4,700 acres of agricultural land across counties such as Tana River, Kisumu, Busia, and Migori were affected, leaving residents without food and shelter for the first time since 1963.
Such losses emphasise 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 models based on historical data proving 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 recognise the need to innovate and create tailored products that cater to evolving risks.
Notably, parametric insurance – a form of coverage that triggers payouts based on pre-defined thresholds such as rainfall levels or wind speeds – is gaining traction.
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 over 1.8 million farmers across Kenya, Tanzania, and Rwanda under parametric insurance, underscoring the significance of this risk solution.
With climate change challenges being too formidable to be addressed by a single entity, this calls for a collaborative approach amongst stakeholders.
Governments, insurance companies, and civil society must collaborate to enhance climate resilience. Governments particularly can play a crucial role by implementing policies that incentivise 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.
