Driving innovation in agricultural insurance: Why donor support matters

Published by:
Focus Region:
Focus Topic:

Successful examples of innovation in agricultural index insurance have relied on several partners working together towards a common outcome. Typical value chains can include an insurance underwriter, distribution partners or aggregators, a payments partner, and technical service providers responsible for index design and development. Among these, one important player has not always been fully recognised: donors. Donors have played a key role in launching several agricultural index insurance services – particularly to encourage innovation in the inclusive insurance space.

The International Fund for Agricultural Development (IFAD) launched its Insurance for Rural Resilience and Economic Development (INSURED) programme in 2018 to integrate agricultural and climate risk insurance into rural development initiatives. The Swedish International Development Cooperation Agency (Sida) financed the programme, which is implemented by IFAD through the multi-donor Platform for Agricultural Risk Management (PARM). The programme aims to protect the incomes of rural dwellers and promote investment in smallholder agriculture. By distributing insurance alongside IFAD-funded programmes and projects, INSURED exemplifies a holistic approach to agricultural risk management. Importantly, the programme offers an example of how donors can promote innovation through the lessons their activities yield.

Across several markets, INSURED’s work with partners focusing on demand, supply and enablement led to a successful integration between insurance and development programmes. In Zambia, INSURED partnered with the IFAD-funded Rural Finance Expansion Programme (RUFEP) to pilot a meso-level agricultural insurance product bundled with PayGo solar home systems used by off-grid smallholder maize farmers. Farmers were covered against harvest losses caused by drought, windstorms, frost, excessive rainfall, heatwaves, hail, flood, pests and diseases. When yields fell below an established benchmark, the aggregator (Vitalite) received the insurance payout before offering farmers a repayment holiday on solar system repayments. Over two years, at least 17,000 farmers were insured. Despite the scheme being curtailed by the impact of the COVID-19 pandemic, the model is now being piloted in Malawi, Senegal and Uganda.

In Guatemala, IFAD fostered an agile approach to microinsurance as part of an initiative led by the World Food Programme within the Home grown school feeding programme. INSURED supported ongoing activities with several diverse partners that helped to distribute drought and rainfall index insurance to over 10,000 smallholder farmers. The parametric product included three distinct pay-out channels: direct payouts to bank accounts, direct payouts to the nearest banking agency and payouts via SMS tokens. These catered to farmers’ differing payment preferences and ensured rapid claim payouts. While offering multiple payment methods is a novel approach, the product remained open to innovation even after launch. In the first season in 2022, 90% of policies were manually registered using paper forms – a regulatory requirement. For subsequent seasons, the partners developed an application to register policyholders using a digital form. This is expected to shorten a 12-minute process into four minutes, eliminating any need for printed materials too.

INSURED’s experience highlights that public-private partnerships and government buy-in are vital for innovative approaches to providing insurance to succeed. In Kenya, INSURED and its partners set up an area-yield index insurance scheme to cover farmers in eight arid and semi-arid counties against the risk of drought, floods, pests and diseases. Over 110,000 small-scale producers have purchased insurance over seven seasons to date. The insurance product is distributed and operated digitally via the e-voucher platform operated by the government-run Kenya Cereal Enhancement Programme-Climate Resilient Agricultural Livelihood Window (KCEP-CRAL) programme, which is funded by IFAD, the EU and other partners. Championed by the Kenyan government, improving access to financial services via digital technology is at the core of this scheme: farmers can access insurance via their mobiles at local, accredited agro-dealers, while payouts are made to farmers’ e-wallets. The use of digital technology extends to the product: crop-cutting experiments used for loss assessment, which include geolocation and digital data recording.

These examples are a subset of INSURED’s achievements. Policy dialogue, project design, knowledge-sharing and capacity-building have also been important areas of focus. Lessons learned have been documented for implementing new or existing agricultural insurance programmes. Some of these include:

  • Agricultural index insurance should be integrated or ‘bundled’ with complementary goods or services. Appropriate examples include agricultural inputs and financial services.
  • Existing programmes implemented by national governments offer insurance providers access to relationships with agricultural stakeholders, and can foster public-private partnerships with governments, development actors, the financial sector, MSMEs and farmers’ organisations.
  • Embedding insurance in wider development programmes supports the sustainable growth of the insurance market and the delivery of insurance schemes.
  • Integrating agricultural index insurance with development programmes should be done in an agile manner and respond to the demand and commitment of at least one partner in the country.
  • Coverage for multiple risks can increase client value and offer partners a compelling product to cross-sell.

INSURED’s lessons are based on working at a national level with government partners in 17 countries. The programme has supported insurance products that have protected over 630,000 rural people from climate risks. Of about 150,000 policyholders, around 73,000 have received payouts worth over US$3 million. Women accounted for over half of those insured. This serves as a compelling example of how agricultural insurance can be used to build resilience to the impacts of the climate crisis among the underserved.


Rishi Raithatha
Originally published on microinsurancenetwork.org
© Micro Insurance Network