Insurtech | ANNEX — The Evolving Role of Corporate Partnerships in Scaling Crop Microinsurance
The content below is an annex to the article, “Scaling Crop Microinsurance: How Does “Who Pays” Impact Scale?.”
This series is produced by Mercy Corps Ventures in partnership with CASE at Duke University. Each article explores the challenges the microinsurance industry faces to scale to support more than 600 million smallholder farmers around the world in becoming financially included and more climate resilient.
Find out more about the project here, and stay tuned for the full series of six articles here.
What is the nature of the partnerships that are forming between crop insurtech enterprises and corporate enterprises connected to smallholder farmers?
Here we outline some examples of these partnerships and their value propositions for all parties, including partnerships with buyers, input suppliers, banks, and mobile network operators (MNOs).
Buyers
Businesses that purchase crops from farmers (e.g., PepsiCo, L’Oréal, intermediary processors)
Value proposition for the buyer
More assured product availability; meeting corporate social responsibility goals
Implications for the smallholder farmer
- Pros | Can be built into existing transactions with buyer; sometimes offered with incentives
- Cons | Only available to farmers with a robust enough cash crop and connected to large buyers
Implications for the Insurtech partner
- Pros | Easier access to farmer clients, and opportunity to build insurance into existing financial transactions
- Cons | Less likely to “own” the end customer than if selling direct
Example partnerships
- WRMS and PepsiCo
If farmers purchase insurance, they will be paid more by PepsiCo during procurement. On the partnership, WRMS Co-Founder and CEO Anuj Kumbhat shares: “These are the solutions where agro-processing is getting the contract from farmers and supporting a risk management mechanism through a product offering — which is farmers incentivized to take insurance solutions so that this risk gets covered. To help the farmer understand the importance of the solution, PepsiCo agreed on incentivizing the farmer if they have purchased insurance — they would be paid more when the procurement happens. In a good year, it’s more than the premium, and in a bad year they get compensation. If farmers took insurance, they would be paid more by PepsiCo.” * - OKO and AB InBev
Participating farmers have their premium deducted from payout during procurement. In an effort to create a sustainable program to improve the livelihoods of its farmer suppliers, AB InBev financed OKO to test the feasibility of providing suppliers with crop insurance. AB InBev wanted farmers to pay their own premiums, so OKO built the premiums into farmers’ existing transactions with AB InBev, wherein AB InBev would deduct the premium amount from the payout to the farmer post-harvest. AB InBev was interested in working with OKO in particular since the company provided a last mile solution selling insurance directly to the user. Another buyer, Touton, has engaged in a pilot with OKO for a ‘sustainability solution’ for the company’s coffee producers in Uganda. Through the provision of insurance, Touton hopes to demonstrate to buyers (e.g., Cadbury) that its farmers are benefiting from the trade. - AXA and L’Oréal
Provides health and climate insurance to farmers, with entities along the value chain absorbing premium costs. As L’Oréal, a large multinational corporation, looked to mitigate risks along its supply chain, it worked with AXA to pilot an initiative covering shea butter farmers in Burkina Faso. The insurance package provided to these farmers includes both climate and health insurance (two key risks facing smallholders), and the cost of the premium is distributed along the value chain (including through cooperatives and buyers).
Yves Komaclo, West Africa Regional Manager for Oikocredit, offered another perspective on the potential role of buyers in growing the crop microinsurance market: “What could open up mainstream insurance companies to agriculture? Incentives. A big incentive would be if they could get buyers of agriculture products involved in structuring the products. Buyers also have a strong role to play in prescribing what they need — define quality grades, certifications required — and a strong role in providing extension services to cooperatives.”
Our takeaway on partnerships with buyers
We see tremendous potential for buyers to play a role in distributing and subsidizing crop insurance, both as a way to secure their supply chains and as a corporate social responsibility effort. However, these partnerships will only impact the small percentage of smallholders worldwide who are growing cash crops and have access to these supply chains.
Input Suppliers
Businesses providing seeds and fertilizers to smallholders (e.g., Monsanto)
Value proposition for the corporate partner
Achieving brand loyalty; lowering risk for farmers to try new products
Implications for the smallholder farmer
- Pros | Reduces risk to try products; premiums are usually subsidized by input supplier
- Cons | If the insurance is attached to a direct purchase (e.g., a packet of seeds), the farmer may need to take several steps to activate the insurance
Implications for the Insurtech partner
- Pros | If subsidized by the input supplier, a premium is less of a barrier to sales
- Cons | Must still invest heavily in sales (i.e., convincing the farmer to purchase the specific inputs); margins are very small
Example partnerships
- Pula and Monsanto
An abandoned strategy; insurance was once bundled into packets of seed for direct sale. Pula partnered with a seed company to include the price of insurance in a packet of seeds. Farmers could activate the insurance upon purchase using SMS. The partners hoped that farmers would value the benefit of the insurance enough to buy the product, and that a commission for the retailer would help to push the sale. However, Pula found that the more distant benefit of insurance was not as compelling to farmers as some of the more immediate benefits provided by other input companies (e.g., a free t-shirt), and Pula was ultimately unable to make the margins work on this strategy. - ACRE Africa and Agri Seed Co
Replanting guarantee, whereby farmers purchasing specific seed can register for drought insurance covering the germination period. This offering, as described on ACRE Africa’s website, is intended to cover the risk of poor rains after planting, and provides a refund of the value of the seed purchase through the farmer’s mobile money account.
Our takeaway on partnership with input suppliers
The nature of the partnerships seems to be changing from the examples we saw, but there is still hope that there’s a role for input suppliers to help subsidize the cost of insurance for their inputs, just alongside different distribution strategies.
Banks & Microfinance Institutions (MFIs)
Value proposition for the corporate partner
Access to new customers, since reach in rural areas tends to be limited; decreased risk in lending to typically high risk customers (i.e., smallholder farmers)
Implications for the smallholder farmer
- Pros | Unlocks access to loans and credit; decreases chances of default
- Cons | Timing of payout doesn’t always meet farmer needs; in the case of a poor season, farmer may have loan forgiven but still suffer from impact of low yield
Implications for the Insurtech partner
- Pros | The banks largely handle the sales and premium collection
- Cons | Significant training still required for banks to successfully sell the insurance and target smallholder customers (although the insurance is often required in order to access the loan); insurtech does not “own” the customer
Example partnerships
- Inclusive Guarantee and Advans (MFI) and Ecobank (bank)
Inclusive Guarantee provides insurance that is packaged with credit from the banks and MFIs for smallholder farmers; the cost of the insurance is built into the farmer’s repayment. - Pula and Central Bank of Nigeria
Pula provides insurance for loans or credit provided by the bank for farmers, primarily focused on farmers who are members of large growing associations (e.g., National Cotton Association of Nigeria). - OKO and various MFIs
OKO negotiates better access to loans for purchasers of OKO microinsurance.
Our takeaway on partnership with banks and MFIs:
Most of these arrangements look the same and are useful to help decrease risk for both the farmer and bank and thus increase access to credit. However, for a farmer facing low yields, partial forgiveness of a loan is not enough to address the loss of food and income for the season. And many smallholders still have trouble accessing loans from banks and MFIs, even with the availability of insurance.
Mobile Network Operators (MNOs)
(e.g., Orange, Safaricom)
Value proposition for the MNO:
Access to previously unserved population; small commissions on insurance sold
Implications for the smallholder farmer:
- Pros | Can remove geographic and eligibility-related barriers to accessing insurance
- Cons | SMS is expensive; must take the time to understand the offering and make purchase
Implications for the Insurtech partner:
- Pros | Support from the MNO partner on marketing support; trusted brand and reach of MNO
- Cons | Still requires significant sales effort; significant effort required to bring on MNO partner
Example partnerships
- OKO and Orange Mali
For OKO, finding an MNO partner is key to entering a new market. In Mali, the MNO Orange has provided OKO with in-kind marketing support and insights to help create a strong customer journey. OKO provides value to Orange by boosting usage and adoption of mobile money in rural contexts, where most MNOs do not yet have traction with mobile money. In one OKO pilot, one-third of the participating farmers opened a mobile money account for the first time. While the MNOs also receive a small commission on each insurance transaction, their motivation to partner with OKO is more about expanding the reach of their platforms. - Pula and Safaricom
Safaricom has its own platform for farmers, and Pula provides an insurance offering for those customers, whereby Pula “does the actuarial risk analysis, insurance placements and negotiations along with physical assessments in the field.” (as described in an April 2021 Reuters article).
Our takeaway on partnerships with MNOs
MNOs and their platforms can play several different roles in the crop microinsurance value chain. While many are still being tested, the loyalty and freemium models tied to airtime have largely been abandoned by microinsurance companies because they have not gained traction (as described in the 2018 landscape report of the Microinsurance Network).
This article was written by Kimberly Langsam, CASE at Duke, and Jane Choi, CASE consultant, and released in November 2021.
*Unless otherwise noted, all quotations in the articles are from interviews conducted by Kimberly Langsam and Jane Choi between May and August 2021.
