Insurtech | The Case Studies: Who is Providing Crop Microinsurance, and How?
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.
“The evolution I’m seeing [in crop microinsurance] is in the beginning, most of these projects used to be driven by development agencies. Usually development projects come with a timeline, like three years. You had the pilot projects and a lot of money going in, and at the end of the project the big question was ‘So what?’ — because in most cases, the projects didn’t continue. So these initiatives never reach scale. With the new entrants into the market — the startups — the important role they play is that they come with a more commercial mindset, with a long-term perspective and focus on sustainability — to really make it happen in the long term. They gradually started to play a more important role of connecting the farmers with the aggregators, and in between they have also tried to innovate around the product. They still have to prove that this model is sustainable, that they can reach scale. We don’t have the evidence yet, but they’ve also not failed yet — so we’re in this process where we’re observing if the model is going to work or not. And so far, it looks promising for some of them but not all.”
Mario Wilhelm, Head of Middle East & Africa, Public Sector Solutions, Swiss Re*
The models Wilhelm is talking about are often referred to as “insurtech” enterprises, or enterprises bringing new technology innovations to dramatically improve the efficiency and effectiveness of insurance products. For our research project, we spoke with insurtechs focused on innovating around the product design and distribution of crop microinsurance to smallholder farmers, primarily in Africa and India. We describe each of the enterprises below, including their key differentiators and lessons learned.
We selected this group of enterprises to interview because they all were implementing slightly different models, with different partners and impact aspirations. At a high level, we saw the main differentiators between the enterprises as:
- Offering insurance as a voluntary vs non-voluntary product
- Utilizing a direct to customer (B2C) vs indirect to customer (B2B2C) model
- Offering different wrap-arounds or bundles
- Basing the offering on weather vs yield metrics (with cost and basis risk implications — more on this below)
Even with their differences, we heard many similar stories of lessons learned, including:
- The need for continual human touch, even with the growth of digital platforms
- The opportunity to embed insurance within other financial transactions
- The need for multiple touch points with farmers to demonstrate value
- The benefit of an organized value chain to effectively provide insurance
- The need to focus on distribution and volume before introducing more complex product innovations
In addition to the insurtech enterprises captured below, we also provide brief overviews of several other key stakeholders in the provision of crop insurance, including agriculture social enterprises focused on improving overall income for smallholder farmers, a global insurer engaged in crop microinsurance, and two catalysts for growth in the crop microinsurance space. For each, we note where they fit into the crop microinsurance ecosystem, as presented in “Insurtech | The Basics: What is Microinsurance?”
INSURTECH ENTERPRISES: GramCover, Inclusive Guarantee, OKO, Pula, WRMS
These enterprises are bringing technology innovation to the microinsurance space to expand the reach and impact of insurance for underserved populations. For each, we highlight the key elements of their crop microinsurance model, the ways in which it is unique, and lessons learned.
GRAMCOVER
“Rural insurance is a challenge for a number of reasons, and rural customer needs are different than that of the urban customer. But we have always maintained that rural is our focus. We have seen other intermediaries who try to serve rural populations while also focusing on corporate and/or urban insurance — and it’s easier to let go of rural if there are challenges, since there is a fallback option available. But we are very focused on rural insurance — it’s the only thing we do. We know the customer profiles and the needs. And that single-minded focus on rural has been key to our success.”
Dhyanesh Bhatt, Group CEO, GramCover
Mission:
GramCover is “on the path of bringing an innovative approach for insurance distribution in rural India with effective use of technology.”
Founded:
2017
Geographies Served:
India (six states as of end of 2020)
Special Sauce:
Using technology to meet the insurance needs of rural India. GramCover focuses exclusively on insurance built for the rural population — it started with crop insurance, but expanded to livestock, life, health, and motor insurance. GramCover uses technology and a partner network to distribute its insurance more cost-efficiently.
Product:
GramCover enrolls farmers into the government-supported crop insurance program (Pradhan Mantri Fasal Bima Yojana - PMFBY), offering area yield and weather-based index insurance that insures inputs or crop value for a variety of crops. [Note that while the Government of India offers a crop insurance program, it is accessible primarily through bank loans; GramCover thus plays the role of bringing this insurance product to those who are not actively taking bank loans (i.e., “non-loanee farmers”).] Any claims payouts are provided directly into the farmer’s bank account. Beyond government programs, GramCover also works with clients and insurers to co-create and distribute tech-enabled, customized parametric insurance programs for farmers.
Distribution:
GramCover uses a partner network, which it trains and certifies, to distribute insurance to rural customers. The agents use an in-house mobile-first platform that aims to create a seamless process and minimize transaction costs.
Wrap-Arounds:
GramCover provides access to other insurance products meeting rural customers’ needs (including smallholder farmers), such as motor, livestock, and health insurance.
Lessons Learned:
- At the beginning of its work, GramCover focused on innovating its product offering and developed a monthly product for farmers. In piloting this product, however, it realized that to achieve traction on product innovation — that is, to engage and build trust with new customers — it had to first establish a strong distribution channel with a more simple product. It learned that once volume is achieved with a simple product, it can become more innovative with its offerings.
- GramCover initially saw a growth opportunity in its point of sale agents reaching farmers with other types of insurance products (e.g., health), but quickly realized that the opportunity was actually greater than expected because agents could also reach the non-farmer rural population with these products.
INCLUSIVE GUARANTEE
“…The [insurance] program has to help them [farmers] find financing… You have to work to establish some sort of confidence between the farmers and the institution that is to finance them; there is not much money so microfinance is gold.”
Vance Abissa, CEO, Inclusive Guarantee
Mission:
Inclusive Guarantee enables populations excluded from the traditional insurance and social protection system to be covered against all types of risks.
Founded:
2011 in Africa (2007 in France)
Geographies Served:
West Africa
Special Sauce:
Addressing classic and microinsurance needs in West Africa. Inclusive Guarantee has combined R&D and brokerage activities in both classic insurance and microinsurance. With respect to crop microinsurance, Inclusive Guarantee focuses on connecting farmers with credit.
Product:
Inclusive Guarantee offers weather-based index insurance that covers inputs, revenues, or loans, and provides payouts in the form of cash or loan forgiveness. The product offers a claims assessment at harvest time.
Distribution:
Inclusive Guarantee partners primarily with input companies, farmer cooperatives, and MFIs to distribute crop insurance to smallholder farmers. When packaged with inputs, insurance is generally distributed through farmer cooperatives or agriculture dealers. When packaged with credit, insurance is distributed through MFIs (or, in some cases, commercial banks). Eighty percent of Inclusive Guarantee’s crop insurance portfolio is distributed through MFIs and banks.
Wrap-Arounds:
Inclusive Guarantee provides technical assistance along the inclusive insurance value chain, from risk assessment to product development, distribution, and financial education. Inclusive Guarantee also provides other insurance products, such as life, automobile, and health insurance.
Lessons Learned:
- In working with banks and MFIs, Inclusive Guarantee has recognized that the distribution arrangement is much simpler to establish when the entity has experience with agriculture (e.g., an agriculture bank). It found that many of the MFIs themselves do not understand crop insurance, and are also providing very small loans to farmers, so the training cost to bring them on board is significant.
- Inclusive Guarantee has found that when there is not an organized farmer program (e.g., through cooperatives or programs of the World Food Programme), it is difficult to connect the farmers with microinsurance.
OKO
“What we learned at BIMA [where Schwall previously worked] was that microinsurance can be scaled pretty quickly if you leverage mobile the right way. Even though people have never had insurance before, it’s not too hard a sale if you make the product simple enough. We were challenging preconceived ideas, and we continue to do this now with crop insurance through OKO.”
Simon Schwall, Co-Founder and CEO, OKO
Mission:
OKO provides “effective, affordable insurance to farmers in emerging markets and delivers instant claim settlement. By leveraging the increasing influence of mobile technology, OKO aims to help overcome income distribution insufficiencies for those who feed the world.”
Founded:
2018
Geographies Served:
Mali, Uganda
Special Sauce:
Last mile distribution and income assurance. OKO offers an innovative distribution model direct to the farmer, in partnership with local mobile network operators (MNOs), that makes the insurance product widely accessible (i.e., not tied to credit or specific inputs) and provides an opportunity to get more value out of each customer acquired given its direct relationship. OKO insures the value of the harvest, thus assuring income, and offers assessments three times during the season to ensure stability of income and demonstration of value through multiple touchpoints.
Product:
OKO offers weather index insurance that insures the value of the harvest against droughts and floods, focusing on crops with well-organized value chains. The product offers claims assessments at three key periods during the season (germination, growth, and maturation), and any claims’ payouts are provided in cash through the MNO partner’s mobile money platform.
Distribution:
OKO distributes crop insurance products directly to the farmer through a mobile platform in partnership with the key MNO in that specific country. In exchange, the MNO has the opportunity to expand the reach of its mobile money solutions to rural customers. OKO invests heavily in customer acquisition costs, deploying teams of sales agents to recruit farmers directly and through farmer cooperatives. In addition, OKO has piloted partnerships with buyers (AB InBev and Touton) to provide insurance to the farmers who sell to them, with the premium being deducted from the harvest payout.
Wrap-Arounds:
Alongside the insurance product, OKO has offered its customers farming advice and improved access to loans (through OKO’s partnerships with MFIs).
Lessons Learned:
- In building its agent salesforce, OKO found that farmers responded better to sales agents coming from the closest large cities instead of from within their own communities; farmers seemed to take those from outside their communities more seriously when it came to insurance sales.
- OKO has experimented with several automated communication mechanisms with farmers (both through SMS and WhatsApp), and while it sees a role for these mechanisms it realizes that self-subscribing is a longer-term goal. While the crop insurance offering is still so new, OKO believes it still needs people on the ground to help build trust and explain the product, and that it would be premature to shift everything to mobile.
PULA
“A lot of our partners have become governments or development agencies. You’re already seeing that. That doesn’t mean that there’s no role for the private sector. One of our investors shared their IC [Investment Committee] report for us, and they said ‘Look, you weld together a very complex chain of actors and there’s a high margin in that.’ We run a profitable enterprise. Does that mean we are profiting off smallholder farmers? I doubt it. But we are providing a valued service and gluing together all the different partners so that insurance exists. Most of the places we work, insurance never existed.”
Rose Goslinga, Co-Founder and CEO, Pula, on the implications of smallholder agriculture in Africa not being self-sustaining or profitable
Mission:
Pula is “an agricultural insurance and technology company that designs and delivers innovative agricultural insurance and digital products to help smallholder farmers endure yield risks, improve their farming practices, and bolster their incomes over time.”
Founded:
2015
Geographies Served:
Kenya, Nigeria, Zambia, Mali, Senegal, Togo, Ghana, Ethiopia, Tanzania, Rwanda, Uganda, Nepal, Cuba, Zambia, Malawi, Mozambique
Special Sauce:
Low basis risk and distribution partnerships. Pula offers an insurance product based on metrics more easily understood and trusted for accuracy by its customers (i.e., area yield and crop-cutting) than the more common weather-based indices. To distribute the product, it welds together several partners engaged in supporting needs along the value chain for smallholder farmers, and embeds the product into existing transactions.
“It affected our margins more [in a negative way] when we did weather index, to be honest. Weather looked like it had margins, but because of all of the basis risk it would never renew, so you have huge start-up costs and huge management costs on that.”
Rose Goslinga, on the cost-benefit of yield index (involving crop-cutting) versus weather index insurance.
Product:
Pula provides area yield and hybrid (yield and weather) index insurance, covering the value of purchased inputs against low yield (and, with hybrid insurance, against weather events impacting specific points during the season). Claims payouts are primarily in the form of loan forgiveness or cash payout.
Distribution:
Pula distributes insurance through a variety of partners, most commonly MFIs/banks and development agencies, but also through agriculture technology companies, governments, and multilateral organizations such as the World Food Programme. Initially, Pula distributed insurance through seed and fertilizer companies, but shifted away from that strategy when it realized that the margins would not create shared value at scale.
Wrap-Arounds:
In addition to using the data it collects to inform its own products and strategies, Pula has begun to explore earning revenue by selling season’s progress and harvest outcome data to various segments of its customers.
Lessons Learned:
- One of Pula’s initial distribution strategies was to attach insurance to input products sold directly to farmers through local retailers, thinking 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). Thus, Pula was unable to make the margins work on this strategy.
- As Pula’s distribution model has evolved, it has moved from B2B2C to B2B and B2G (business-to-government) models, where it finds it can have healthy margins to create a viable and profitable business. The insurance products provided to farmers through these partners are compulsory. This model is not unlike other successful, scalable models for insurance in different markets and focused on different sectors (e.g., health insurance provided through employers, or government-mandated car or home insurance). In a SOCAP21 session on insurtech, Goslinga pointed to the psychology of insurance for the consumer as underpinning this approach: “I’ve been selling insurance for the last ten plus years, and I myself do not like buying insurance. I still consider it as a cost, and I’d rather not have it. And that’s coming from one of the biggest advocates for insurance. If that’s my perspective, then we have to be honest with ourselves.”
- Recognizing that agriculture for smallholder farmers in Africa is unlikely to be self-sustaining and profitable (and thus will require some subsidy), Pula began to focus on bringing in more development agencies and multilateral partners (in addition to its private sector investors). Pula believes that bringing together partners from the public and private sectors can create a profitable model for crop microinsurance in Africa.
WRMS
“Quick fixes are not going to last longer. You will have to find a way to fundamentally improve agriculture for risk management to work. Otherwise you will find that, unless it is subsidized, no farmer will keep on taking index insurance — or for that matter any insurance — because it alone doesn’t improve agriculture. The solution has to result in income improvement. Unless a loss happens, most farmers don’t understand that there is a risk transfer mechanism that is helping them.”
Anuj Kumbhat, Co-Founder & CEO, WRMS
Mission:
WRMS “leverages data, technology, and financial innovation to develop risk management solutions that help farmers enhance productivity, gain a secure income, and practice sustainable farming.”
Founded:
2004
Geographies Served:
India, Bangladesh, Cambodia, Fiji, Caribbean, Indonesia, Zambia, Malawi, Tanzania, Rwanda, Senegal, Mali
Special Sauce:
Offering an evolving set of solutions to ultimately incentivize improved agricultural practices. WRMS conducts deep research on specific crops and regions to understand risk along the value chain, and identifies the risks it can help address and those that it cannot. WRMS then provides crop insurance (and/or yield guarantees) and advisory services that support and incentivize farmers to mitigate the risks that can be managed, leading to its ability to offer an income guarantee through one of its products (see more on SecuFarm below). WRMS also provides simpler insurance/yield guarantee products for those smallholder farmers newer to accessing insurance.
Product:
WRMS offers weather-based index insurance using weather data from its low-cost weather station business, along with sensing technology, to insure farmers against adverse weather events and natural disasters. The product does not cover pest and disease risks, unless these risks can be modelled using weather data. WRMS also partially covers price fluctuation risks by offering to buy the product at a price that is slightly higher than the market price. (While WRMS doesn’t provide full price guarantee to most of its farmers, it is working on a pilot to offer price options for commodities traded in the futures market; with this effort, WRMS would be able to provide a full price guarantee for the commodities where futures markets provide significant trading depth and a completely transparent price discovery mechanism.)
For its new SecuFarm product, WRMS focuses on a subset of crops and geographical regions where it has sufficient data to manage risks. SecuFarm offers complete yield protection for farmers at the farm level, with no restrictions on farm size. The farmer must follow a package of farming practices suggested by WRMS to receive an incentive on a benchmark yield below which the farmer would receive a payout. Alongside the yield assurance, WRMS also offers farmers access to markets for the commodities where the company is able to create market linkages. All compensation for yield losses is paid out through the farmer’s bank account.
Distribution:
WRMS distributes its products and services directly to farmers, as well as through organized retailers, farmer producer organizations (FPOs), input and processing companies, and credit institutions.
Wrap-Arounds:
WRMS provides comprehensive tech-enabled advisory services to farmers, for a fee, and also engages in several additional B2B business lines related to agriculture risk.
Lessons Learned:
- In its initial work reaching farmers directly with insurance, WRMS learned that claims for crop insurance alone did not provide enough interaction with the farmer to build a relationship and spur renewals. WRMS thus fundamentally changed the way it thought about engaging with its end users, and shifted its B2C and B2B2C efforts to nurture more holistic relationships through high-touch wrap-around advisory, optimized high-quality agriculture input packages, and market linkages alongside with risk management.
- WRMS sees product innovation as a staged process, with the first stage being kickstarting simple parametric insurance for smallholder farmers, often in collaboration with various development actors. Once farmers have understood and used insurance, WRMS believes it can offer them a more complex and comprehensive product, such as its SecuFarm offering.
GLOBAL INSURANCE PROVIDER: AXA
This multinational insurance company, with local affiliates in numerous countries, engages in crop microinsurance through its AXA Emerging Customers and AXA Climate business teams.
AXA EMERGING CUSTOMERS
www.axa.com/axa-emerging-customers
“Having a team dedicated to inclusive insurance (AXA Emerging Customers) as well as a team dedicated to climate insurance (AXA Climate), and being a global insurer with entities locally, gives AXA the ability to go to the field, to do trainings, to dialogue with farmers — and be active not only on the distribution side, but also on the insurance and reinsurance side. I don’t think it’s the case for many players today.”
Anaar Kara, Global Lead of Agriculture Value Chains, AXA Emerging Customers
Mission:
AXA Emerging Customers “works to ensure that emerging customers around the world gain access to protection for their families, businesses, and communities.”
Founded:
2016
Geographies Served:
Global
Special Sauce:
Leverage local and global assets to design and distribute crop microinsurance. AXA utilizes local country affiliates, its own reinsurance business, and global relationships to create and distribute crop insurance products in several markets.
Product:
The type of crop microinsurance product offered varies, depending on region and demand. In India, AXA offers yield-based index insurance, and in West Africa it offers weather-based index insurance; in India there is an amount insured by hectare depending on the crop (per PMFBY), and in West Africa the insurance product primarily covers the costs of productive inputs. Depending on location, AXA may cover maize, cotton, or other crops. Claims payouts can be provided in the form of cash payout directly to farmers or as loan forgiveness.
Distribution:
In West Africa, AXA has worked in partnership with local affiliates or intermediaries to distribute crop insurance through various farmer associations. In India, AXA delivers crop insurance through the national scheme (PMFBY), and has built up large field teams to encourage farmers to participate in the plan.
Wrap-Arounds:
AXA is increasingly looking at creating bundled offers, such as health combined with climate insurance, in order to address more risks facing smallholder farmers.
Lessons Learned:
- On pricing and the importance of public-private partnerships, Anaar Kara shared, “At the moment, index insurance is priced on an index by index basis. If there’s a way to move toward looking at the portfolio and seeing if we can optimize pricing based on the diversification of risk across the portfolio, it might help improve on the pricing. But it is obviously very challenging and agriculture is risky, so it’s costly. I think having government involvement is important. Public-private partnerships, as the IDF is fostering, can be key to bring crop insurance to scale; for example, premium subsidies are one possibility, but there are also taxes on these products — and the taxes can be quite high. Governments could help address the tax issue and, overall, help create an enabling environment.”
- On the role of subsidies in crop microinsurance, Quentin Gisserot, Project Manager for AXA Emerging Customers, explained: “I’m not ashamed to say we depend on subsidies for this business. It’s an expensive type of coverage. Crop insurance is often 10% the worth of what you’re insuring. And smallholder farmers will never have the money to pay for that. It will never work without government intervention. In France, crop insurance is subsidized at 60%.”
AGRICULTURE SOCIAL ENTERPRISES: One Acre Fund, Acceso
These revenue-generating nonprofit organizations provide a variety of support to improve the livelihoods of smallholder farmers. We share the ways in which they have leveraged crop microinsurance as part of their offerings, alongside the challenges they face in doing so.
ONE ACRE FUND
Mission:
One Acre Fund creates meaningful impact by helping smallholder farmers improve their productivity and increase their on-farm incomes.
Relationship with Crop Microinsurance:
In most of the countries where One Acre Fund works (e.g., Kenya, Rwanda, Tanzania, Malawi, and Uganda), it automatically enrolls farmer clients in area yield index insurance embedded within its core service offerings (which include input loans, distribution, and training). In the case of significantly lower-than-average yields, the farmer receives a payout in the form of loan forgiveness (for inputs purchased from One Acre Fund on credit), or prepayment on inputs for the next season. While One Acre Fund has at times used an intermediary to manage the insurance product, it now works directly with insurance companies and governments to create and price the products, cutting out the intermediary where possible.
Challenges/Opportunities:
“The primary value of the way we provide insurance, which just covers the input costs, is to encourage farmers to purchase enough fertilizer and seed. While covering this need is critical to de-risking the decision of farmers to invest in their fields, we’d love to be able to do more. Ultimately, what insurance should provide — if higher coverage were affordable — is a cash transfer for when extreme weather hits and crops fail, covering a portion of the anticipated yield revenues that are lost. That would then become a really transformative social safety net — and an efficient one, only paying out when the need arises.”
Colin Christensen, Global Policy Director, One Acre Fund
ACCESO
Mission:
Acceso works to build inclusive and sustainable food systems, and to create fundamental and lasting change in the lives of rural smallholder farmer families and communities.
Relationship with Crop Microinsurance:
Acceso provided weather-based index insurance in its Ivory Coast pilot program for soybean and maize smallholder farmers. The insurance was bundled into the standard package of inputs that Acceso provides, and covered those inputs in the case of a drought or other weather-related issues. The insurance was not optional for farmers in initial seasons, however Acceso expected to transition it in later years to be optional for those with a history of successful repayment. While Acceso did not continue this program in Ivory Coast, it is now testing its feasibility in other countries in which it works.
Challenges/Opportunities:
As Acceso COO Rob Johnson explained, the gross margins on soybean and maize are low, which requires more scale and overall investment for Acceso to break even. These low gross margins also make the incorporation of additional costs related to microinsurance more difficult to absorb through trading activities.
GLOBAL CROP MICROINSURANCE CATALYSTS: Insurance Development Forum, InsuResilience Solutions Fund
These entities are working to catalyze and scale more innovation in the microinsurance space. Here, we share brief overviews of how.
INSURANCE DEVELOPMENT FORUM (IDF)
Mission:
IDF is “on a mission to optimize and extend the use of insurance and its related risk management capabilities to build greater resilience and protection for people, communities, businesses, and public institutions that are vulnerable to disasters and their associated economic shocks.”
The IDF is a cross-sector public-private partnership of over 100 members who all share the vision of using and expanding insurance to build resilience in communities vulnerable to climate change and natural disasters. The partnership brings together insurance industry players (e.g., insurers, reinsurers, brokers), multilateral organizations, NGOs, and public sector institutions. Officially formed in 2015 after the idea was conceived at the UN General Assembly, IDF is led by a steering committee and has several working groups dedicated to different aspects of the insurance industry. Two of the working groups particularly relevant to the growth of crop microinsurance include ‘Sovereign Humanitarian Solutions,’ which looks at supporting last mile distribution schemes (among many other things), and ‘Inclusive Insurance,’ where private and public sector actors share data from pilot projects with the goal of developing inclusive insurance solutions at scale.
INSURESILIENCE SOLUTIONS FUND (ISF)
www.insuresilience-solutions-fund.org
Mission:
The ISF supports innovative solutions to mitigate the negative effects of climate change, with a focus on insurance in developing and emerging economies.
The InsuResilience Solutions Fund (ISF) launched in 2018 by KfW Development Bank, with funding from the German Federal Ministry for Economic Cooperation and Development (BMZ), in response to the recognition of climate insurance as a key priority coming out of the 2015 G7 Summit. ISF supports the scale of stakeholder-informed climate insurance solutions, among other things, providing catalytic grant funding to partnerships that bring together both the supply and demand sides of the crop insurance market with the objective to either develop new climate risk insurance solutions or improve and scale-up existing products in developing and emerging markets. Local context is key for these partnerships’ success, and it’s ISF’s goal that these products be self-sustaining (and able to attract other capital).
In the next article in the series, “Scaling Crop Microinsurance: How Will Data & Tech Impact Scale?,” we explore the ways in which the evolution of data and technology can enable impact at scale, alongside the remaining limitations.
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.
