In 2018, ISF Advisors, in partnership with the Syngenta Foundation, published a key report Protecting Growing Prosperity: Agricultural Insurance in the Developing World that provided a snapshot of the agri-insurance markets in low- and middle-income countries – and highlighted a significant gap in insurance coverage, with 80% of smallholder farmers in the target countries lacking access to any form of insurance.
To help move this discussion forward, a State of the Sector report update was commissioned by a new partnership of donors - including the Bill and Melinda Gates Foundation, Syngenta Foundation, Financial Sector Deepening Africa, and Swiss Re Foundation - and authored by ISF Advisors with support from the Microinsurance Network.
Low- and middle-income countries are more vulnerable to the impacts of climate change, particularly since a large proportion of their populations depend on climate-vulnerable sectors, such as agriculture, for their livelihoods.
Smallholder farmers in particular suffer disproportionately from the impacts of climate change, and a huge amount of effort is being put into developing solutions that simplify the insurance process for these farmers and breaking down the barriers to them being able to access relevant and affordable products and services.
However, the challenges of developing and delivering insurance to smallholder farmers remain significant. The understanding of insurance among farmers is typically low, products can be complex and costly to deliver, and regulatory frameworks to facilitate the insurance market are often lacking. Multi-sector collaboration is, therefore, urgently needed to close the persistent insurance protection gap, as well as innovation.
A new view on solutions, bundling and intermediary business models is an area of focus of the report, where innovation has played a role in furthering the sector. Since 2018 there have been significant advancements in the diversity of indices used to support agri-insurance products and in the sophistication of prediction models. A number of scientifically tested and publicly recommended indices are now available, while commercial providers continue to innovate and develop their own in-house indices as well. This proliferation of indices has sparked a need for independent quality assurance, like Quality Index Insurance certification (QUIIC) to offer voluntary quality certification for index insurance products, developed by our member, the Feed the Future Innovation Lab for Markets, Risk and Resilience (MRR) at the University of California, Davis.
Refining a view on the role that technology and data play within agri-insurance has also been observed as an important focus area, where innovation has seen new datasets and indices improve the accuracy of prediction models, increase quality and/or reduce the cost of assessments, enhance the ability to accurately profile customers, and reduce overall basis risk, since 2018. At the same time, the insurance value chain has evolved to include a number of steps requiring specialised data, technological capabilities, and use of digital channels to reach customers at scale.
Areas of innovation around data collection, predictive capabilities necessary for accurate modelling of events, improving accuracy of farmer profiling and enhancing customer support, include the Internet of Things (IoT) and Artificial Intelligence (AI) and Blockchain. Overall, while there is more use of new technologies, they are not challenging established business models.
The deep dives into these issues in the report analyse the salient issues that will further shape a shared understanding of the opportunities and challenges in the agri-insurance market.
The full findings of this report are being published today and were partially informed by a virtual event “Smallholder Risk and Resilience Convening: An action-oriented industry dialogue on scaling agri-insurance“ held in January 2022 which attracted over 130 key global stakeholders who debated the fundamental challenges of delivering efficient and effective insurance to smallholder farmers – including taking stock of progress since 2018 and proposing a new set of priority areas to guide work over the next five years.
The key takeaways from these discussions are captured in the report and include four opportunity and priority areas for action, with a focus on those that represent a substantive shift from the current focus of the industry.
We are delighted to publish this comprehensive report with ISF Advisors today as we continue our efforts to close the protection gap and improve resilience to climate change in the vulnerable communities and sectors where it is most needed – with smallholder farmers at the centre of the action agenda.