In Focus – Adaptation to Clim

ate Change and Insurance – Financial Literacy – Kenya

SUBJECTThe term “financial literacy” means having the knowledge, skills and confidence to manage your finances well, taking into account your economic and social circumstances, where:· “knowledge” means having an understanding of personal

financial issues;· “skills” means being able to apply that knowledge to manage

one’s personal finances; and· “confidence” means feeling sufficiently self-assured to make

decisions relating to one’s personal finances.People who are financially literate are able to make sound financial decisions for themselves and their families, to make informed choices between different financial products and services, to budget and to plan ahead, to build up some savings, to protect themselves against financial risks, to invest prudently and to understand their rights and responsibilities. Financial literacy initiatives do not include:· financial product marketing – promoting a brand or specific

products or services; or· commercial financial advice – by which we mean advice

which may result in the recommendation of a specific finan cial product or service from a particular provider.

CHALLENGES IN KENYAInsurance literacy and general awareness on insurance is very low amongst the majority of small scale farmers as well as potential intermediaries in Kenya. This hampers the development of a private-sector driven insurance market.

Spreading awareness on insurance and interventions in order to improve insurance literacy among clients, have been left so far to the insurance companies and their sales structures. The Insurance Regulatory Authority (IRA) is only sporadically involved. This has obvious cost implications for the private sector. As a consequence, information has mainly been provided to support the actual sales process.

The government has no clear position on how to possibly deal with some of the most pertinent challenges impeding the effective spread of agricultural insurance. Some of these challenges are low insurance literacy and awareness, lack of data, limited supply of suitable insurance products for different segments of farmers, (mostly) negative profitability of agricultural insurers, potential crowding out of insurance through government disaster financing, etc.

IN FOCUS:

FINANCIAL LITERACY

SOLUTIONDesign of training manual

1. In order to address the issue of low insurance literacy levels amongst farmers, the project developed a training manual aimed at educating intermediaries (Training of trainers) on agricultural insurance, extension officers of the ministry and technical service providers. They in turn provide training to farmers.

2. The manual was developed in direct collaboration with major Kenyan insurance companies as well as the IRA, and the input supplier Syngenta, which promotes the Kilimo Salama product, underwritten by UAP Insurance (a weather index product now sold to over 100,000 smallholder farmers in Kenya).

3. The manual is an easy-to-use guide divided into six modules. a. Module 1 provides guidance on how to prepare the

trainings; b. Module 2 to 5 take the farmers through a process of

understanding farming as a business, the risks involved in farming, risk transfer mechanisms, weather index insurance, the process of purchasing a product, and basic consumer protection issues and;

c. Module 6 provides exercises for farmers to apply the lessons learned throughout the training modules.

4. The insurance literacy modules were successfully pilot-tested with the Ministry of Agriculture, Livestock and Fisheries extension officers.

LESSONS LEARNED1. Insurance literacy campaigns and trainings are essential

for development and growth of the market for insurance products in any given country, but require substantial resources (human and financial).

2. The private sector is often neither in the position or reluctant to make these investments (which are considered common goods / public affairs) in an emerging and often risky market. There is, however, a role the public sector and / or development partners must play.

3. From a consumer protection point of view, it is desirable that farmers receive quality information on the advantages / limitations of specific insurance products.

4. In the project areas farmers appreciated that insurance literacy training was undertaken by extension agents, who have no immediate business interest. In this case the trust in the validity of information by farmers was higher.

5. Insurance literacy campaigns using government structures were successful, but had higher costs, compared to services provided by private service providers.

6. Trainers / service providers need to be well trained and quality of service needs to be constantly cross-checked.

Name:Adaptation to Climate Change and Insurance (ACCI)

Duration:January 2011 – May 2014

Name of component activity:Insurance literacy for small-scale farmers

Program Area:Kenya (country-wide)Focus Regions: Busia and Homa Bay Counties

Cooperation:Ministry of Agriculture, Livestock and Fisheries (MoALF)Agricultural Sector Coordination Unit (ASCU)

Local partner:Insurance Regulatory Authority (IRA), Association of Kenyan Insurers (AKI) and Kenyan insurance companies

Target group:Focus on smallholder farmers, although improvements in the provision of agricultural insurance automatically benefit larger segments of the farming population

Documentation:www.acci.co.ke

Contact person:Petra Jacobi (petra.jacobi@giz.de)Agricultural and Climate Risk Insurance (acri@giz.de)