Mobile-enabled disaster risk insurance: the case of ACRE Africa

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Empty water hole during a drought in the district of Malabane, Mozambique

@IFRC/Aurélie Marrier d'Unienville. Licensed under C BY-NC-ND 2.0

As climate change increasingly threatens the livelihoods of smallholder farmers, development agencies are strengthening their focus on disaster risk insurance as a powerful –yet technically challenging- tool to mitigate the economic and social consequences of natural catastrophes on smallholders’ lives. In the frame of a climate-smart and farsighted approach to agricultural development, disaster risk insurance can be a game-changer, allowing governments, development agencies, and other public/private stakeholders to establish effective safety nets for smallholders that can ensure the stability of their livelihoods in the aftermath of extreme natural events.

Published: 5 September 2020
READING TIME: 4 minutes
Author: Niclas Benni

With that being said, disaster risk insurance comes with its own set of challenges to design, implement, and uptake. High administrative and transaction costs, low awareness on the part of farmers, a weak national infrastructure for the gathering of climate data…these are only a few of the barriers to cross in order to ensure that disaster risk insurance can be made effective and brought up to scale. Nevertheless, as will be seen from the following case study, digital technology –and especially mobile technology- can play a powerful role in overcoming -or mitigating- many of these constraints.

The Kilimo Salama (Safe Agriculture” in Kiswahili) programme was launched in 2009 as a collaboration between the Syngenta Foundation for Sustainable Agriculture, the insurance group UAP Holdings, and the Kenyan telecom operator Safaricom. It offered index-based micro-insurance coverage to Kenyan farmers (based on weather and area-yield indexes) with the aim of protecting them against the effects of drought and excess rainfall. This has proven to be a critical service in a country, Kenya, where the agricultural sector employs at least 56% of the total labour force, while contributing to 25% of the country’s GDP.

Jemimah Anyango receiving her payout from ACRE Africa in 2019. Photo credit: ACRE/ @ACRE

In 2014, the Kilimo Salama programme became a fully-fledged commercial company called ACRE Africa, expanding in the following years to offer a wide range of products that went beyond index insurance, such multi-peril crop insurance (against drought, storms, pests, and diseases), agricultural portfolio coverage for financial institutions, replanting guarantees, and livestock insurance for dairy cows.  ACRE is active nowadays in three countries: Kenya, Rwanda, and Tanzania.

More than a direct insurance company, ACRE presents itself as a service provider that partners with several organizations in the financial and agricultural sectors (such as commercial banks, local insurance providers, seed companies, input dealers, processors, farmers’ cooperatives) to enable the provision of customized insurance solutions for small farmers.

As of 2018, ACRE has supported more than 1.7 million smallholders in obtaining insurance for over US$ 177 million, against various weather risks. According to an impact study, farmers insured by ACRE had invested 19% and earned 16% more than their uninsured neighbors.  In April 2018, ACRE received an award as Best African Startup in Agritech at the AfricaDays in Paris.

A key example of ACRE’s work is a mobile-enhanced insurance product called Bima Pima, which ACRE provides to smallholders in collaboration with local input dealers. A farmer can buy a Bima Pima scratch card together with a bag of seeds or fertilizer at the beginning of the agricultural season. Once at the farm, the farmer can activate the scratch card through his phone, with an initial premium cost of 50 Kenyan shillings (USD 50 cents) and possible later top-ups via SMS that increase the level of insurance coverage granted.  Once the farmer activates the card, ACRE is able to geo-tag the farm through the mobile localization service. A combination of satellite and weather station data will then determine whether the farmer will receive a payout –directly on his mobile account- in case of drought or excess rain on his land.

While Bima Pima is one of many different insurance products offered by ACRE, it is a good example of how a mix of smart design and digital innovation can provide several benefits to farmers: the convenience to buy the scratch cards at local agri-dealers; the relative ease of use of the system; the capacity to buy additional levels of coverage (by topping up); and the possibility to pay for the premium in small amounts and over time.

Beyond just Bima Pima, ACRE offers a full range of micro-insurance products via mobile to its farmer clients, by leveraging what is arguably the best-known mobile money platform in the developing world, Safaricom’s M-Pesa, which can boast over 30 million users in 10 countries (18 million just in Kenya).  Overall, there are several advantages in using mobile technology to provide disaster risk insurance to farmers, both for ACRE and for its clients:

  1. It allows ACRE to centralize and manage more effectively the collection of data on clients’ identities and activities, while substantially reducing administrative and operational costs;
  2. It facilitates the registration of new policies and the accurate localization of insured farms (through customer geolocation). As a consequence, it allows to strongly expands distribution channels, allowing to reach a large population of smallholders based in remote areas that are completely disconnected from brick-and-mortar banking and insurance facilities;
  3.  It strongly reduces the time required to apply for a policy, settle claims, and communicate with clients;
  4. It allows for easier bundling of insurance with other financial services (such as mobile wallets), as they can all be channeled into the same platform;
  5. Most importantly, in the frame of disaster risk management, it can strongly increase the rapidity of payout provision following an extreme natural event. This represents a critical advantage in a post-disaster scenario, where timeliness in handing out payouts is essential to mitigate the impact on livelihoods and prevent the adoption of negative coping behaviors on the part of farmers.