The government has proposed a major overhaul of Kenya’s agricultural insurance market by creating a standalone class of underwriting business targeting risks unique to the farming sector.
In his budget speech, Treasury Cabinet Secretary John Mbadi announced that the government will amend the Insurance Act to formally establish agricultural insurance as an independent insurance category.
The proposal marks the clearest regulatory shift yet towards ring-fencing agricultural risk cover from broader insurance classes as climate shocks intensify pressure on farmers and food systems.
“The government has initiated amendments to the Insurance Act to establish agricultural insurance as a standalone class of insurance business,” Mr Mbadi told Parliament during the budget presentation.
“This reform will strengthen the regulatory framework for agricultural risk management and support food security, financial inclusion, and sustainable agricultural development.”
The reforms are expected to reshape how insurers design, price and capitalise products covering crops and livestock against risks such as drought and floods, among other farm-related disasters.
Currently, agricultural insurance products are largely housed under general insurance business despite carrying risk characteristics significantly different from conventional motor, property or medical covers.
The shift builds on earlier reforms that introduced micro insurance as a standalone cover category aimed at expanding low-cost coverage to low-income and informal sector populations.
Agriculture shares many of the same challenges that drove the micro insurance reforms, including low penetration rates, irregular incomes, small-ticket policies, as well as high vulnerability to shocks.
Insurance penetration in Kenya remains below three percent of gross domestic product, with agricultural coverage accounting for only a tiny fraction of total insured risks despite farming remaining a critical economic sector.
Agriculture contributes roughly a fifth of Kenya’s GDP directly and employs millions of households either formally or through smallholder farming activities.
Risks within the sector have intensified in recent years as climate variability increasingly disrupts rainfall patterns and agricultural productivity across the country.
Repeated drought cycles have wiped out crops and livestock in arid and semi-arid regions while floods have simultaneously destroyed farms in high-rainfall areas.
Kenya has previously rolled out subsidised crop and livestock insurance schemes targeting smallholder farmers through partnerships involving government, insurers and development agencies.
Uptake has, however, remained relatively low due to affordability challenges and limited awareness, as well as difficulties in assessing farm-level risks.
Agricultural insurance products are also significantly more complex to structure as losses are often systemic rather than isolated, meaning one weather event can trigger massive simultaneous claims.
Unlike motor accidents or property losses that occur independently, drought or flood events can affect entire regions and overwhelm insurers if risks are poorly diversified.
Currently, limited historical farm-level data remains one of the biggest obstacles to scaling agricultural insurance products profitably.
