Drought index insurance offers lifeline as climate shocks push farmers to edge

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For more than a decade, Gershom Rutaro from Jinja City in Eastern Uganda has planted and harvested food crops on his land.  In the last decade, however, he watched droughts, erratic rains and other climate shocks wipe out his efforts season after season.

Each failed harvest has forced him to sell his produce cheaply to clear debts, locking him into what he describes as a vicious cycle of losses.

“I have farmed for over a decade, but climate change-induced disasters have left me with little to show for my labour. Every time I farm, bad weather and climate-related disasters hit me, and I hardly get my investment back. Repeated losses have pushed me into distress sales to repay loans,” he says.

Rutaro now says he is considering agricultural insurance to test the waters after years of farming without any safety net.

In Kole District in Northern Uganda, Alum Vicky tells a different story. Alum says she once walked the same path as Rutaro, suffering repeated losses that kept her trapped in subsistence farming. That changed, she said, after subscribing to agricultural insurance three years ago.

“Before I took up agriculture insurance, my farming business was not doing well, but since taking up agriculture insurance in 2023, my children moved to better schools. I have even bought a heifer from the cash compensation I recently got when disaster hit me. I have no worries. I have realised there are more benefits in insuring your crops or animals,” narrated Alum.

She added, “Proceeds from insured farming enabled me to rebuild my life. Where I failed, insurance stepped in, and I am well. I now have nothing to worry about when I am farming. When the crops do well, I gain. When the crops fail due to weather issues, I have a shock absorber as insurance,” Alum said.

Alum belongs to a farmer group of over 1,000 farmers in  Northern Uganda. The group is coordinated by Benson Otim,  a farmer from the region.

Otim says access to agricultural insurance has transformed livelihoods in his farming  families and the surrounding community.

“The impact is very visible. When you compare life before and after insurance, the difference is clear. My farmers are happier, their incomes have improved. I have seen beneficiaries buy vehicles, pay school fees for their children, build semi-permanent houses, and support their families. Entire households are developing,” he said.

“The most recent compensation was paid on the 12th of this month, with payouts determined by acreage and expected yield of the farmer. The minimum premium paid by farmers is sh1,260, which is affordable,” he said.

According to Otim, some of the farmers have received up to sh3 m, which he says is a lot of money for most of the farmers in the region.

“My farmers are satisfied because the system is transparent. I grew up without this knowledge of agriculture insurance, but now I am exposed, and I am deliberately transferring it to others. My farmers are now in the driving seat. My goal is to ensure that rural communities fully benefit from agricultural insurance,” he said.

Climate risks, food security

The contrasting experiences of Rutaro and Alum highlight a growing debate in Uganda’s agriculture sector as climate change increasingly disrupts food production and farmer incomes.

Experts say climate risks are undermining productivity and food security, but argue that agricultural insurance can encourage farmers to invest in improved production methods while cushioning them against losses.

Alhaj Kaddunabbi Ibrahim Lubega, the chief executive officer of the Insurance Regulatory Authority (IRA), described recent reports of widespread crop losses as saddening in a country where agriculture underpins the economy.

“Uganda is predominantly an agro-based economy. This loss is not only for farmers but the entire country; everyone shall be affected through rising food prices ,” Kaddunabbi said, referring to recent reports of maize gardens scorched by dry spells.

He noted that food constitutes the largest portion of household budgets for many families, meaning any rise in food prices directly impacts people’s finances.

Kaddunabbi said the situation could change if farmers insured their agricultural enterprises. “Insurance serves as a risk management tool that can provide farmers with financial security against losses in production,” he said.

Ernest Barutsya Magezi, an insurance actuarial consultant and chief executive officer of Kenbright Uganda, pointed out that agro enterprises are susceptible to natural calamities such as: prolonged drought, excessive rainfall, unpredictable weather changes, pests and diseases, exposing farmers to losses if no mechanisms are in place to address such risks.

He explained that agricultural insurance involves farmers paying a premium to an insurance company in exchange for a guarantee against losses from risks such as: floods, drought, pests and diseases, usually for a farming season or year.

“Most farmers rely on borrowed funds to buy inputs. When losses occur, they often lack financial means to repay these borrowed funds, which often deters them from making further investments in agriculture. However, for the insured farmers, in the event of loss, the insurer compensates the farmer to restore them to their pre-loss position,” he said.

For profitability, he encouraged farmers to consider agricultural insurance to cushion their enterprises from unexpected risks.

Drought index insurance

At the centre of this shift is drought index insurance, a product based not on individual farm inspections but on measured weather conditions. The insurance pays out when a pre-determined drought index shows that crops in a given area are under stress severe enough to cause losses.

Under this model, drought conditions are monitored using satellite data. The scheme partners with EARS, an independent satellite remote sensing company based in the Netherlands.

The EARS drought index is continuously monitored by satellite and represents drought and growing conditions anywhere in Uganda.

It indicates declining water availability and resulting crop yield losses, both for current conditions and historical events.

During the growing season, the rainfall evapotranspiration (RE) index tracks drought severity across insured areas. If the index remains above average, no payout is triggered. When it drops below average, it signals the onset of drought.

Once the index reaches a strike level, yield losses are considered imminent, and a payout for that location is triggered. The exit level marks the maximum payout of 100% of the sum insured in the event of a total loss.

To manage risk, rates and premiums under the rainfall evapotranspiration drought index are aggregated into zones, which can cover a group of farms, a sub-county or an entire district.

Farmers within the same zone pay the same premium rate and receive the same payout rate for the same sum insured.

Other interventions

Government intervention has played a central role in expanding access to agricultural insurance. In the 2016/2017 financial year, government introduced the Uganda Agriculture Insurance Scheme (UAIS) to provide farmers with access to subsidised insurance.

The scheme is managed by Agro Consortium, an umbrella organisation of insurance companies offering agricultural insurance covering crop, livestock, aquaculture and apiculture risks.

Under the UAIS, government contributes sh5 billion annually in premium subsidies to make insurance affordable.

To insure crops, farmers pay 5.5% of the value of the crops they want to cover, except in disaster-prone areas where different arrangements apply according to Uganda Agriculture Insurance Scheme.

Insurance Regulatory Authority records indicate that uptake has grown steadily. By December 2017, only 45,704 farmers had taken up cover. By the end of March 2023, the number had cumulatively grown to 687,608 farmers insured under the scheme.
Over the same period, claims paid increased from sh2.2 billion in 2017 to sh33.4 billion cumulatively by March 2023.

Kaddunabbi said farmers who have embraced insurance have benefited significantly.

“Through this compensation, farmers can enhance their agricultural earnings, expand their farming initiatives and projects, and increase their overall income as compared to those who do not have insurance, thereby raising their standards of living,” he said.
He noted, however, that demand for agricultural insurance subsidies is now outstripping supply.

“We are in discussion with the Ministry of Finance, Planning and Economic Development to increase the subsidy aiming at encouraging more farmers to adopt and embrace insurance and approach agriculture as a business venture,” he said.

The insurance industry, he added, plans to extend agricultural insurance services closer to farmers by licensing at least 12,000 dedicated agricultural insurance agents, working alongside the existing 3,681 agents selling other insurance products.

He said embracing agricultural insurance would also enable farmers to access credit from commercial banks, which have traditionally considered them too risky.

Expanding the scheme

Calls to expand funding for Uganda agricultural insurance scheme have intensified as climate risks rise. Despite agriculture contributing about 24.1% to gross domestic product and about 33% of export earnings, experts say insurance adoption remains low, leaving farmers exposed to floods, landslides and pest invasions.

The chairperson of the IRA board, Isaac Nabeta, urged government to triple its financial commitment to the UAIS from sh5 billion to sh15 billion to enhance farmers’ access to insurance.

Speaking at the fifth Insurance Innovation Awards in Kampala recently, Nabeta said additional funding would significantly impact the sector.

“The insurance industry needs an additional boost of sh10 billion to make a substantial impact in the sector. Agriculture employs over 70% of Ugandans across the value chain, and it is imperative that we support and safeguard the livelihoods of farmers by enhancing productivity and stability,” Nabeta said.

John Makosya, a senior consortium officer at Agro Consortium Uganda, said agricultural insurance penetration remains below 1% of the farming population.

He said increasing the fund would encourage more farmers to take up insurance, especially in disaster-prone areas.

In the 2023/2024 financial year, he said, out of 148,000 farmers who insured their crops, only 37,000 benefited due to depletion of available funds. Demand for the subsidy is increasing, which calls for more support,” he said.

From Northern Uganda,  Otim warns that insurance becomes unaffordable without government support.

“For the last two years, we have not received the government subsidy, yet it is a key pillar of this programme. We appeal to government to reinstate and increase the subsidy because farmers benefit directly,” he says.

Uganda’s Minister of Finance, Matia Kasaija, has described insurance as a tool for risk management and economic stability.

He said the sector employs nearly 10,000 Ugandans and contributes more than sh200 billion annually in taxes, but noted that overall insurance penetration remains below 1%.

Leveraging AI, machine learning for better yields

Beyond financing, experts say technology is reshaping how climate risks are managed.

Regional initiatives such as the Intergovernmental Authority on Development’s Strengthening Early Warning Systems for Anticipatory Action (SEWAA) project are leveraging artificial intelligence and machine learning to improve weather forecasting and early warnings.

At the launch of SEWAA’s second phase in Entebbe recently, Fetene Teshome, director general of the Ethiopian Meteorological Institute, said AI-driven forecasting models are instrumental in strengthening early warning systems.

“One of the attested adaptation mechanisms to extreme weather events is the establishment of a mature early warning system that serves the last-mile victims by utilising emerging sciences, including artificial intelligence,” he said.

Weather experts say improved forecasting complements insurance by enabling anticipatory action.

Joselyn Bigirwa, IGAD head of mission to Uganda, says climate-induced disasters have worsened food security and economic challenges, making the shift from reactive responses to anticipatory action urgent.

Relatedly, organisations such as the Uganda National Farmers Federation say insurance has already demonstrated tangible benefits.

Caleb Gumisiriza, the federation’s director of policy, said weather index insurance has helped farmers meet contractual obligations even in poor seasons.

He, however, emphasises the need to build farmer confidence and improve understanding between insurers and farmers.

Farmers’ access to finance, insurance

For Alex Madolo, Agriculture Sector Head at DFCU Bank, informality is one of the biggest constraints facing farmers’ access to finance and insurance.

“Many farmers still treat agriculture as a side hustle rather than a business. They do not keep records, they do not bank their income, and that undermines their creditworthiness. One simple but critical rule is that farmers must bank their money. Banks and insurers need evidence, proof of how much was spent on seed, inputs, and production, to assess risk,” Madolo explains.

He notes that agriculture finance has traditionally relied on multi-peril insurance, yet climate variability has made risk assessment more complex.

“Sometimes the rains come, but at the wrong time, or in insufficient amounts. That is where index insurance, supported by satellite data, becomes useful. It allows insurers to assess rainfall and sunshine patterns remotely, without physically visiting farms,” he says.

Madolo  acknowledges that banks have also fallen short in awareness creation. “I will not deny, little has been done to educate farmers on productivity, mechanisation and risk management. In many cases, farmers only take up insurance because it is a loan requirement,” he says.

However, Madolo observes that some farmers have developed a victim mentality, yet agriculture must be treated like any other business. “Our markets are still developing and the risks are high, but there are also information and risk-expertise gaps that need to be addressed,” he said.

He emphasises that “Farming does not start in the field, but with planning. Too many farmers enter agriculture without proper business preparation, and that limits growth and resilience.”

As Uganda’s climate becomes increasingly unpredictable, the experiences of farmers like Rutaro and Alum underscore the stakes.

For Rutaro, the prospect of insurance represents a possible exit from years of losses. For Alum, it has already transformed farming from a gamble into a business.

Against a backdrop of rising climate risks, policymakers and industry Magezi says scaling up agricultural insurance could determine whether Uganda’s farmers merely survive or build resilience in the face of an uncertain future.