Weather risks like drought and heavy rainfall, can have a damaging impact on the harvest and income of a farmer. These conditions have a knock-on effect on the local economy and threaten the food security of a country.
In a 2014 TED Talk, Rose Goslinga discusses the product development involved in the Kilimo Salama (now ACRE) program, launched in 2009. ACRE is an agricultural insurance agency in Kenya, primarily concerned with providing microinsurance to small scale farmers.
Traditional crop insurance relies on regular farm visits to assess the risks. These visits are not feasible for small farms in Africa, so insurers need to rely on technology and past data. ACRE uses cloud data from satellites and has developed argonomic algorithms to predict the amount and timing of rainfall.
The cover was initially difficult to sell. The intended customers, small scale farmers, didn’t trust insurance companies and hence didn’t buy the product. They preferred, and were more familiar with microcredit from organisations such as seed companies, cellphone companies and government agencies. These organisations were taking on the credit risk themselves and limiting their own growth. ACRE realized this and decided to rather insure the loans of such organisations.
The real product innovation happened in 2012 during the drought in Kenya. ACRE introduced a replanting guarantee. One of the microcredit clients of ACRE requested an early payout so that the farmers could replant and still get a harvest for the season. This client had provided loans to about 6000 farmers in the affected area. ACRE agreed and also persuaded a seed company to price the cost of insurance into each bag of seed. When the farmers bought new seed, they would find a card with a number in the bag. The farmers could then text the number to the insurance company, and would be allocated a satellite pixel. This would measure the rainfall over the following three weeks. If it didn’t rain, the insurer would replace the seed.
Crop insurance in Africa requires insurers to consider the needs of farmers and really understand their context and culture. Many organisations have partnered with ACRE, including Swiss Re. It will be interesting to see the future growth of this company and the uptake of crop insurance in Africa.