Key takeaways
· Crop insurance can help smallholder farmers in Africa and elsewhere manage climate risk and stabilize livelihoods in the face of droughts and extreme weather.
· Although insurance has evolved to become more affordable, further innovation is needed to ensure high-quality products that cover farmers’ needs.
· Scaling coverage requires public–private partnerships and smart subsidies to make insurance affordable and viable.
· Adoption depends on better product design, farmer education, and links to credit and inputs to build trust and encourage investment.
As climate change impacts intensify, African economies face increasing exposure to extreme weather events. The World Bank estimates that nearly 18% of the world’s population is at risk from severe weather events from which recovery would be difficult; in Africa, that number is 37%. Agriculture, which hundreds of millions of Africans depend on for their livelihoods, is especially vulnerable. African smallholders often lack sufficient safety nets, while farming is heavily reliant on rainfall, making the sector disproportionately vulnerable to climate shocks.
Crop insurance and other types of risk transfer instruments are promising tools for farmers in low- and middle-income countries to secure their investments and manage income fluctuations. These tools help in protecting household welfare by providing financial lifelines to farmers during crises, and more generally by unlocking financing and farmer investment in high-return activities such as investing in fertilizer, increasing area produced, and increasing production of cash crops.
The literature is on this question is clear: ten evaluations of various insurance products across contexts, in Africa and other regions, show that when farmers are confident in the security provided by their insurance coverage, they increase investments in higher-return activities by 15%-30%. This investment gain is substantial, considering higher investment is the secondary benefit of insurance (after protection in crises).
Yet crop insurance has not been widespread in Africa. The availability of high-quality, cost-appropriate insurance has been limited, and only some of the risks African farmers face are well-suited to insurance (the risks of many types of crop losses can be reduced through improved production practices, soil health, and water management).
But this is changing. Africa now has a strategic opportunity to transition crop insurance from pilot projects to scalable, continent-wide systems. By leveraging historical lessons, technological innovations, and “smart” subsidies, governments and international organizations can advance risk transfer solutions that increase production and food security while fostering inclusion and resilience. In this blog post, we outline the state of current knowledge and the opportunities and priorities for increasing the availability and use of insurance in African agriculture.
The evolution of crop insurance
The historical trajectory of agricultural insurance, in Africa and other developing regions, is an important starting point for understanding the current opportunities for scaling. Over time, approaches moved from indemnity-based models to index-based solutions and more recently to technology-driven hybrids:
Multi-peril crop Insurance (MPCI): Frequently employed by governments during the 20th century, these programs protected against production and yield losses caused by a wide range of risks and were often linked to state-owned agricultural bank loans. Because MPCI insured production/yield (products of both weather conditions and farmer effort), it created moral hazard. Farmers, knowing they were insured, often took excessive risks or reduced efforts to prevent losses. These programs proved expensive and undermined sound lending practices, leading most to be phased out by the end of the 2000s.
The rise of index-based Insurance (IBI): This approach emerged in the 1990s as a solution to the high costs and moral hazards of MPCI. IBI payouts are triggered by objective measurements—such as rainfall data from weather stations or satellite imagery—rather than on-farm loss assessments. While this approach lowered administrative costs, a critical step towards scaling insurance, the quality of these insurance products was often low because IBI introduced basis risk: the discrepancy between the insurance payout and the actual loss experienced by the farmer. If a farmer loses their crop but the weather or satellite data do not trigger a payout, the product makes the farmer worse off, as they have paid for the insurance but receive no compensation for a loss. Additionally, take-up was limited by farmers’ liquidity constraints at the start of the agricultural season, low levels of understanding about the products, and designs that did not work for the needs of women farmers. Consequently, demand for IBI remains low unless the products are heavily subsidized. While much of the literature on the early evolution of MPCI and index insurance comes from experiences outside Africa, the underlying mechanisms—moral hazard, basis risk, and the drivers of demand—have proven highly relevant for African markets as well, and similar patterns have emerged across pilot programs on the continent.
Technological innovations and hybrid models: The development of insurance markets was stuck for several years with two unworkable approaches: MPCI products that met farmer needs but were commercially unviable, and commercially viable IBI products that did not meet farmer needs. However, recent technological and product innovations have had positive results that address basis risk and improve demand. One innovation is gap insurance, which combines low-cost index insurance with conditional audits to cover losses the index might miss. A second is picture-based insurance (PBI) using smartphone photos of fields to remotely assess farm-level damage, combining the accuracy of indemnity insurance (verifying actual damage) with the low cost of index insurance. This has shown strong promise in multiple African pilots, with higher farmer trust due to visible loss verification. Another successful production innovation has been bundling insurance with other products and services, including agricultural inputs and credit, combined with marketing through existing social structures that share risk, such as funeral groups. Bundled insurance‑credit‑input programs in East Africa have demonstrated improved uptake when integrated into existing service delivery channels.
Table 1
Better targeting the use of insurance
In addition to product innovations, today there is a much better understanding of when and how to use insurance as a targeted approach to risk management. This also makes it more viable and scalable.
Insuring investments not incomes: Insurance is an expensive tool for risk management. One way to address that challenge and make it more commercially viable is to insure the farmer’s investment in the current season’s production process (the cost of seeds, fertilizer, pesticides, irrigation costs, or the loan used to finance these items) rather than full agricultural incomes or the final harvest value. This approach is particularly well-suited to Africa, where risks to agricultural incomes can be reduced through a range of improved farming techniques.
Bundling insurance with specific inputs or credit can act as a powerful enabler for technology adoption, by protecting the farmer’s investments in high-cost yet high-return inputs (like hybrid seeds and fertilizer). This makes insurance not only a risk‑management tool but a financial sector instrument that supports economic development and strengthens credit markets. While this approach typically targets commercial farmers, subsistence farmers—for whom insurance acts more as a social safety net than a tool to unlock investments—may still benefit more from subsidized full-income insurance.
Segmenting the insurance market: Historically, agricultural insurance has required significant public subsidies to reach scale. By the late 1970s, billions of dollars were spent globally on MPCI subsidies. It is important to move away from such blanket premium subsidies toward targeted interventions that build market infrastructure or directly support the most vulnerable. Different approaches are needed for different segments of farmers.
- For commercial farmers, governments shouldfocus on overcoming market development hurdles. Public funds should invest in weather stations, digital banking infrastructure, and data systems to make markets more cost-effective. Subsidies might also underwrite extreme catastrophic events or reduce the costs of reinsurance.
- For subsistence farmers, subsidies for those near the poverty line should be formally linked to social safety nets and public relief programs. Governments can adopt sovereign insurance, using instruments like those offered through the African Risk Capacity (ARC), backed by the African Union, to insure against the costs of scaling up public safety nets during disasters. The impact of sovereign insurance is maximized when funds are disbursed quickly and when beneficiaries are aware that coverage is in place.
- Insurance products can also be developed to allow migrant family members to insure rural relatives for weather-related shocks, which tend to trigger an expansion of their remittances.
Recommendations for scaling insurance
Insurance is one part of a broader toolkit. Risk reduction (e.g., drought-resistant crops, irrigation) is often more cost-effective than risk transfer and should be the first priority. But insurance has an important role to play. Here are some recommendations for scaling the availability and use of insurance among farmers in Africa.
To move beyond pilot programs, insurance products must be high-quality and tailored to diverse contexts. The following will help in designing the right high-quality product for the right context:
Product quality
• Leverage AI: Encourage the use of artificial intelligence tools to improve index accuracy. AI can automate image recognition for claims settlement; apps based on large language models (LLMs) can facilitate client interactions at scale; such tools should be carefully tailored to local contexts to build trust and inclusion.
• Quality assurance: Consider the establishment of national or regional bodies to monitor product quality, specifically focusing on basis risk. This would build on existing efforts like the Quality Index Insurance Certification (QUIIC).
• Strategic partnerships: Facilitate partnerships between regulators and global funds (e.g., Green Climate Fund, Global Index Insurance Facility) to provide seed funding for integrating technology into insurance design.
• Bundling: Expand insights on how to successfully bundle insurance with credit, inputs, and early warning systems, without locking out vulnerable groups of farmers.
Market segmentation
• Sovereign and macro-micro links: Encourage the use of national-level insurance (like ARC) to cover extreme risks, which allows the private sector to enter the market and insure more moderate risks.
• Migration and remittances: Regulatory frameworks should be adjusted to allow migrants to insure remittances against weather shocks in their home regions, opening a new market segment for private insurers.
• Foster learning around smart subsidies: There is a lack of empirical evidence regarding the cost-benefit ratios of insurance subsidies compared to other risk management tools. Partner with research organizations to generate rigorous evidence on the cost-effectiveness of government investments in public insurance schemes. Develop guidelines that focus on funding public goods (data/infrastructure) or temporary product subsidies that target the most vulnerable.
• Transparency: Work with insurers and reinsurers to gain insights into the actual costs of scaling successful schemes.
Conclusion
We stand at the edge of a paradigm shift in how agricultural risk is managed in LMICs and Africa in particular. Championing insurance solutions that are technologically advanced, integrated with social protection, and supported by evidence-based subsidy models can help to transform African agriculture. These measures will not only protect smallholder farmers from immediate climate shocks but also unlock the investment necessary for long-term agricultural resilience and food security across the continent.
Ruth Hill is the Director of IFPRI’s Markets, Trade, and Institutions (MTI) Unit; Berber Kramer is an MTI Senior Research Fellow based in Nairobi, Kenya. Opinions are the authors’.
Reference:
Kramer, Berber; and Hill, Ruth. 2025. Crop insurance for climate resilience: Priorities for South Africa’s G20 Presidency. SAIIA Policy Brief 16. Johannesburg, South Africa. South African Institute of International Affairs. https://saiia.org.za/research/crop-insurance-for-climate-resilience-priorities-for-south-africas-g20-presidency/
