How Can Digital Tools Improve Access to Agricultural Insurance?
Risk is an inherent feature of agriculture around the globe. In many countries, entire industries are dedicated to managing this risk. Yet, in developing countries, smallholder farmers (and other small enterprises across the value chain) often do not have access to key risk management strategies like insurance to protect themselves from shock. For smallholders, there are important barriers to accessing insurance, such as lack of awareness and understanding about insurance among households, high overhead costs associated with data collection and claims processing, and the limited availability of insurance products that meet the needs of poor and low-income farmers.
Introducing digital tools to agricultural insurance has the potential to reduce these barriers, revolutionizing farmers’ access to insurance and boosting the effectiveness of insurance. Drones can be deployed to detect diseased crops, RFID chips can facilitate tracking of livestock, mobile payments can expedite insurance claims and satellite imagery allows for the remote collection of weather data. These digital tools are facilitating client uptake, reducing transaction costs and improving efficiency of the agricultural insurance process. When external shocks hit households, agricultural insurance can increase their resilience while ensuring stability and growth and sustainability of agricultural value chains.
While all these are exciting advances in digital insurance, how does a development practitioner know whether, when and how these tools are used?
The recently created Using Digital Tools to Expand Access to Agricultural Insurance helps tackle these questions. The guide’s analytical framework provides a systematic process and set of tools to help users assess whether agricultural insurance is an appropriate intervention. Users can identify obstacles where digital tools provide a feasible solution for increasing access to agricultural insurance and opportunities for donor investments.
To highlight the need for the guide and break down some of the complexities of insurance, USAID hosted a panel of experts in January to discuss key considerations for integrating agricultural insurance into programs. Some of the considerations may seem straightforward and others incredibly intricate, yet they all are critical examples of the range of issues practitioners must think about in order to implement agricultural insurance efficiently and effectively.
Take a look at the key points mentioned by the experts:
- Understand the needs of the client. When considering agricultural insurance, practitioners need to design a solution that reflects farmers’ realities. As practitioners know, smallholder farmers face many risks, not just those related to agricultural production. The guide helps users consider smallholders’ challenges, from the minute to the over-arching. For example, for the most vulnerable populations — often the hardest to reach — mobile phones can be used to walk clients through the insurance claim market, but if clients do not own a mobile phone or do not have reliable connectivity, a non-digital approach would need to be adopted. The Index-Based Livestock Insurance (IBLI) program’s use of m-learning provides a good example of improving the cost-efficiency of client outreach by enabling continuous and timely diffusion of product information to farmers.
- Finding the right partner. Insurance is a complex product. It requires partnership at multiple levels, from client outreach to distribution to back-office processing, not to mention a financial partner to underwrite the risks. The guide breaks down these complexities and makes implementing insurance approachable. For outreach and consumer education, for example, the guide explains how users should work with organizations embedded in the local community such as farmers’ cooperatives, credit unions, microfinance institutions, input providers and savings and loan groups. These organizations can help practitioners collect client information, like a digital client profile, and identify opportunities that exist in communities for risk management and insurance solutions. For example in Uganda, Feed the Future’s Commodity Production and Marketing Activity partnered with the Ugandan firm Akorion to develop an integrated digital platform which uses mobile technology to collect biographical information on smallholder farmers. The platform connects farmers to a range of digital financial services including crop insurance and production loans.
Commercial insurers are often hesitant to enter new markets, especially rural areas, because of perceived expense. When commercial insurers are not a viable partner, practitioners can creatively lower delivery costs by collaborating with public entities and NGOs to mobilize demand and, where feasible, use digital tools such as mobile payments. Partnerships with financial institutions or seed suppliers to bundle credit and insurance products are another delivery channel that provide value for the consumer and cost-efficiency for the provider.
- Data, data, data. Insurance is a data-rich business. Digital tools allow for data collection at a more extensive and granular level than ever before. With satellite technology, government and insurers are able to use historical weather data to build predictive models and price risk. Mobile phone applications allow for collection and creation of client profiles that contain micro-level information about the size and condition of a farmer’s plot of land, what crop he or she is producing, assets owned, spending habits and more. The availability of data helps practitioners identify trends and gaps to develop tailored interventions, it helps insurers calibrate their risk and pricing model, and it helps governments better direct their resources towards at-risk regions. However, the privacy of individual data should not be overlooked. The guide instructs implementing partners on balancing the need for data-driven innovation with the need for transparency and consumer protection.
As both the panel of experts and the guide emphasize, agricultural insurance is not a cure-all and should not be considered a standalone product. Insurance projects should follow the mantra of “do no harm” and seek to facilitate access to products that provide value and improve the resilience of farmers. Agricultural insurance should be one of many tools used to manage agricultural risks. Moreover, agricultural insurance may not always be the most effective intervention. Not all farmers will want or need insurance even if and when it is available and affordable. However, by following the phases of analysis detailed in the guide, Feed the Future staff and implementing partners will be positioned to identify and design appropriate interventions, helping target farmers and value chain actors manage risk and increase incomes.