It is well-known that insurance can act as an economic lifeline, a financial safety net to help people rebuild their lives and livelihoods following a devastating event or financial shock. For farmers in developing countries where agriculture is the main source of work, having access to such financial security is vital – especially considering the increasing frequency and severity of climate disasters.
For these farming communities, insurance can provide financial cover for several scenarios, such as crop failures caused by drought or floods, or even cover for loss of livestock; but as well as proving beneficial during the claims process, insurance has the potential to deliver multiple advantages during the policy lifecycle as well. From helping farmers gain access to credit for stock or modern farming equipment, to delivering education on innovative, sustainable and climate-friendly agricultural practices, insurance – in one form or another – can fundamentally help keep farmers out of poverty, enhance their productivity, and ensure economic growth – all key deliverables of the UN’s Sustainable Development Goals.
But while the benefits of agricultural insurance are far-ranging, uptake in climate-vulnerable countries is low. The reasons behind this vary, however. In most circumstances it is because traditional insurance policies are simply unaffordable, inaccessible, and offer little tangible, everyday value.
The Microinsurance Network (MiN) provides a platform for practitioners to share information in order to help pinpoint common problems and issues faced by both insurers and potential customers, and it is through member contributions on best practices and ideas that specific market barriers can be overcome.
Technology can play a significant role, from increasing product accessibility through online sales and mobile money, to helping make policies more affordable through the use of parametric tools.
So, how exactly can insurers improve their agriculture and climate risk insurance products and services with technology? And how are they able to deliver true value and therefore increase uptake? Much depends on where farmers are located, what they are producing, and the challenges they face.
In Rwanda, for example, farmers have begun using radio frequency identification (RFID) microchip technology to overcome challenges associated with animal identification. As MiN member Ovia Tuhairwe, CEO of Radiant Yacu, discussed during European Microfinance Week, traditional methods of animal identification, such as branding, leg rings, ear tags and paint, are prone to issues such as tampering and number duplication, which can lead to ineffective record-keeping. In addition, some of the more traditional methods can cause pain or discomfort to the animals, which in turn affects productivity.
By using RFID microchips, however, farmers are able to track, identify and store breeding and animal welfare data of their insured livestock in an efficient and cost-effective manner, without any burdensome paperwork or inflicting pain to their animals. Being centrally monitored also ensures transparency during claims procedures, which for the farmer means faster payments following a claim. It is little wonder that by offering such tangible value, farmers in the region are becoming more receptive to agriculture insurance and the benefits it can bring.
The sky's the limit
As with all industries, technology comes in all shapes and sizes, and for farming it is no different. From microchips and automated spray drones, to high-resolution pest control cameras, there are numerous modern solutions being designed to bring farming into the 21st Century. One of the most game-changing examples, however, is satellite weather data – especially when it is applied to parametric insurance.
As was demonstrated during a field trip during the International Conference on Inclusive Insurance 2022, tenant farmers in Hounslow, Jamaica, are now able to access GK Weather Protect, a parametric insurance cover designed to provide financial resilience against the risks presented by extreme weather events. Designed and delivered by GK General Insurance – the insurance arm of food manufacturer GraceKennedy Group – the product offers low premiums, insured sums of USD 3,000, and a transparent claims process, helping build trust with their customer base.
Pay-outs are triggered by pre-defined levels of rainfall, drought, and/or wind speeds, and paid to the policyholder automatically. For the farmers, this means immediate access to funds following a weather-related disaster, which in turn speeds up recovery times. Initially subsidised by the Jamaican government to encourage uptake, around 0.5% of farmers have purchased GK Weather Protect so far, and efforts are ongoing to help increase this further.
With farming the main source of income for around 18% of the Jamaican population, encouraging uptake of agriculture insurance is vital – not only for the sake of the farmers' livelihoods, but for the wider financial stability of the country as well. As is being increasingly recognised, uninsured damage to crops or livestock has a direct impact on income, meaning farmers could find themselves unable to pay rent, bills, and even loans.
For credit unions, such as the Jamaican Co-operative Credit Union League (JCCUL), an increasing number of loans not being paid would, in effect, impact their ability to offer financial support and loans to farmers. Without access to such credit, farmers could find themselves unable to purchase essentials such as seeds, livestock and farming equipment, leaving them prone to slipping back into poverty.
To help avert such a situation, international insurance broker Howden, InsurTech Skyline Partners and reinsurance provider Munich Re have collaborated to deliver a parametric insurance product that covers the cost of defaulted loan payments by farmers whose work and income has been impacted by extreme weather events. Having been designed with transparency at its core, the policies are helping build trust between insurers and customers – and Howden has even contributed to the first year’s premiums to drive this message even further.
Breaking with tradition
As these examples show, technology has the power to not only change the very nature of agriculture insurance, but to drive uptake, and therefore build resilience. By embracing and implementing technology, insurers can find themselves in a position where they can deliver far more than what is usually offered by traditional insurance.
With technology, insurers can take on new climate-related risks, and they can design and develop products that ensure trust and offer tangible value outside of the claims cycle. In the short-term, such actions will ensure that farmers, their families and their communities are protected from poverty, which in the long-term will ensure that local economies remain prosperous, even in the face of financial shocks.