Agricultural Insurance for Smallholder Farmers: Digital Innovations for Scale
The GSMA AgriTech Programme's report, Agricultural Insurance for Smallholder Farmers, explores the challenges service providers face in scaling index insurance and the potential opportunities for growth through partnership-based approaches. We provide a summary of our findings below:
Smallholder farmers are increasingly affected by financial shocks and natural forces beyond their control. This includes extreme weather or crop damage from pests and diseases. Globally, less than 20 per cent of smallholders have insurance coverage to protect themselves against the impact of such unexpected events.
Farmers have been unable to access indemnity-based insurance services, which require farm level loss assessments. Low awareness and knowledge of insurance — coupled with the high cost of premiums — have restricted farmer uptake. Insurance providers have largely overlooked smallholder farmers; the cost of acquiring and serving rural customers in remote locations makes farmers a less profitable customer segment for the industry.
The emergence of index insurance, which leads to payouts based on a predetermined indices rather than on-farm visits, has tackled some of the challenges of indemnity-based models. This includes overcoming high operational costs, the cost of premiums and the ease of settling claims. Over the last 10 years, index insurance services have been using mobile and satellite technology to digitize service creation and delivery — enhancing their potential to scale in the process. There are further opportunities for mobile network operators (MNOs) to use mobile technology to register and locate farmers, as well as to use mobile money to collect premiums and pay out claims.
Many smallholder farmers are increasingly using index insurance services as a safety net against crop or livestock losses. However, despite the ease of access and stronger digital value propositions, most smallholder farmers have yet to fully adopt index insurance. Index insurance service providers face a variety of challenges. These include poor availability of historical and current weather data; difficulties providing certain services (e.g. area-yield index insurance) without government support; and distributing services efficiently.
There are a number of ways to overcome the challenge of weather data scarcity and complement existing data sources, such as remote data from satellites. MNOs, in particular, have an opportunity to use base stations to co-locate automated weather stations and commercial microwave link data from mobile networks to monitor rainfall. Commercial microwave links (CML) are ground-level radio signals used in mobile telecommunication networks globally. During rainfall, these signals are attenuated, leading to changes in the signal strength between transmitting and receiving base stations. Using an algorithm, CML data can be analyzed and converted into realistic and accurate rainfall measurements, effectively turning a mobile network into a virtual network of rain gauges.
Different actors can be the lead service providers of index insurance services — such as insurers, technical service providers (companies that offer administrative and technical input for insurance services), or MNOs. Under each model, partnerships with organizations trusted by farmers — such as agro-dealers, extension agencies, and NGOs––are key to distributing and scaling index insurance services.
Meanwhile, bundling and cross-selling index insurance with other value-added services is key to driving uptake amongst farmers. Bundling allows farmers to access a suite of relevant services, such as agronomic advisory and input loans. Cross-selling index insurance with other types of insurance such as health insurance offers farmers greater cover for their risks and can often allow insurance providers to cross-subsidize the cost of index insurance services.
If you would like to read more, you can find the full report here.