How Pula created an index insurance ecosystem in Nigeria

With a $6 million Series A funding round secured, 2020 was a momentous year for Pula. This event showed appetite among investors keen to support the growing use of emerging technology in agriculture. While this investment is likely to help the company continue to grow, 2020 can also be considered as an important milestone for many of Pula’s customers.

Pula was formed in Kenya in 2015, and quickly began operating in other Sub-Saharan African countries. Nigeria is one of Pula’s largest markets; to date, over 1.7 million smallholder farmers have been covered by Pula’s insurance policies. Almost half of these farmers were insured in 2020.

Agricultural insurance has been available in Nigeria since 1987. Despite this, insurance coverage among smallholder farmers has remained below one percent. In 2011, a World Bank initiative to assess the suitability of weather index insurance — where payouts are based on the occurrence of a specific weather event over a specified period in a defined area — found that it was unsuitable. The study concluded that the main peril that affects crop production, i.e., disease, and the low density of weather stations made it difficult to run a commercially viable service.

At the same time, area yield index insurance — where assessments made at the farm-level against a predetermined index for a given area — was also deemed unsuitable for Nigeria. This was due to an absence of a nationwide system and accurate procedure to carry out crop cutting experiments to measure yields. However, Pula developed a cost-effective, digital crop cutting experiment method, and an area yield insurance product that is simple enough for large groups of farmers to understand easily.

In Nigeria, Pula has developed an insurance ecosystem with a wide consortium. This comprised two primary insurers, Veritas Kapital and Leadway Assurance, as well as eight local co-insurers and a number of renowned global reinsurers (Africa Re, SCOR, Continental Re and WAICA Re). By partnering with the Central Bank of Nigeria, Pula insured nearly 550,000 farmers that had taken out agricultural input loans through the Bank’s Anchor Borrower Programme. These farmers were spread across all 37 states in the country, covering over 500,000 hectares in value chains for cassava, cotton, maize and rice.

Pula worked with a number of lenders enrolled in the Programme, who provided details of their farmers, including the crops grown and farm locations. This information allowed Pula to price the insurance risk accordingly and ensure sufficient reinsurance capacity. At the start of a season, Pula provides farmers with insurance cover and agronomic advisory — the latter is usually sent via mobile. At the end of a season, Pula carries out crop cutting experiments to measure actual harvest yields. If yields were found to be below the expected benchmark for that area, farmers’ debts were automatically forgiven for the following season.

In its launch season, around 15,000 farmers were paid nearly $600,000. In 2020, over 50,000 farmers were paid around $7 million dollars — a record sum for payouts to smallholder farmers in Nigeria. These payouts covered floods in the north of the country, and drought in the south. At least 25,000 crop cutting experiments were carried out over five months to determine these payouts.

Over the last five years, by working with both the public and private sectors, Pula has built local insurance capacity — a key government priority — and introduced growing confidence in insurance among smallholder farmers and their aggregators. Pula’s insurance cover and approach is unique: without adequate insurance products, smallholder farmers in Nigeria have been highly exposed to the impact of weather shocks for years. Pula’s area yield index insurance product has allowed farmers to better understand and manage their risks, and improve their resilience to climate change.

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