On November 15, 2019, the Global Index Insurance Facility (GIIF) hosted a full-day seminar, International Experience with Agriculture Insurance: Providing Financial Protection Against Climate Risks, in Washington, DC.

In his opening remarks, Mr. Olivier Mahul, Practice Manager of Crisis and Disaster Risk Finance (CDRF), reflected on his 15-year career at the World Bank starting with involvement in Index-based livestock insurance (IBLI) in Mongolia followed by crop insurance scheme in India to offer his insights on how the agriculture insurance has evolved by tacking various challenges. He summarized three focal points of development like 1) accuracy of insurance including data quality, modeling analytics using data from multiple sources, product customization; 2) speed of insurance that indemnifies farmers promptly possibly even before events happen; 3) cost of insurance which entails affordability and cost-sharing among policyholders, government and donors in a public-private partnership. Mr. Mahul stresses the critical role technology plays to advance protection in agrarian communities and patience as the key ingredient for long-term success.

Session One: Managing the Risks - Agriculture Insurance Pools

Panelists:

• Funmi Omokhodion, Regional Director, Africa Re
• Vijayasekar Kalavakonda, Senior Financial Sector Specialist, WBG

Moderator: John Luke Plevin, Financial Sector Specialist, WBG

Video recording

Insurance is fundamentally a risk pooling mechanism where the premium paid from members (farmers, government, etc.) in the pool is effectively channeled to compensate the financial losses of those affected by covered perils, thereby delivering economic and social benefits. 

Ms. Omokhodion offered an overview of Africa Re, which was established in 1976 by the African Union as an initiative of the African Development Bank (AfDB) to foster the insurance and reinsurance industry in the continent.  Its partnership with GIIF has enabled the growth of local markets for index-based climate risk solutions. Notably, since 2017, the subsidized stop-loss cover has been provided in Zambia, Mozambique, and Nigeria to reduce reinsurance costs to assist insurers’ growth. Ongoing work is to possibly expand the coverage to all African countries under GIIF operation. The example of Nigeria was provided along with challenges in offering agriculture insurance in the country ranging from data scarcity, low financial literacy to technical capacity. Africa Re has been provided reinsurance support and training to increase the underwriting capacity of Nigerian insurers, increasing the number from 4 in 2017 to current 12. In addition, it has been collaborating with ACRE Africa to develop digital solutions (e.g., satellite and mobile technologies) to leverage the success of Replanting Guarantee products in Kenya that is enabled by an innovative partnership with input suppliers and mobile network provider. The strong commitment of the Nigerian government to agriculture development provides a favorable condition to advance agriculture insurance.

Mr. Kalavakonda surveyed country- and region-level agriculture risk pools in the world and focused on AGROSEGURO in Spain and TARSIM in Turkey with implications to PMFBY program in India. Spain’s Agroseguo manages the implementation of the Spanish combined agriculture insurance scheme, partially subsidized by the government, on behalf of 22 coinsurers in the pool, ranging from 20% share held by Mapfre to 0.05% share by Pelayo Mutual. The PPP has made agriculture insurance possible for nearly all commodities produced in Spain, synergizing the higher number of coinsurers and developing claims reserves and reinsurance mechanisms to relieve the financial burden of farmers in climate adversities. The national agriculture insurance in Turkey, participating by 24 insurers, benefits from the well-designed legal framework and web-based platform that mainstreams the whole insurance process for efficiency. The government provides a 50% premium subsidy and serves as reinsurance at the last resort. The penetration of high volatility lines such as aquaculture and greenhouse produce is still relatively low, keeping the average loss ratio for the pool in the past decade low at 71%. In India, PMFBY offers agriculture insurance in 23 out of 29 states supported by 18 insurers who compete for business in each state and are independently responsible for its own risk retention and reinsurance. The current model possesses operational and implementational challenges. Learning from international experience and comparative analysis, PMFBY may benefit from risk pooling for improved efficiency, diversification benefits, and standardization of process, which leads to more efficient claim settlement. It is also essential to understand the implications of the drawback of an aggregate pool, which is to lose risk differentiation to ensure equality of coverage and premium charge.

Session Two: Public-Private Partnership in Agriculture Insurance

Panelists:

• Mweene Monga, Director for Business Development, Mayfair Insurance Company Zambia
• Joe Glauber, Senior Research Fellow, International Food Policy Research Institute (IFPRI)
• Irfan Razzaq, Consultant for SMART Punjab Program-for-Results (P4R).

Moderator: Diego Arias Carballo, Lead Agriculture Economist, WBG

Video recording

Because of the scale of challenges and impact of interventions to farmer welfare, agriculture insurance is usually implemented through public-private partnerships (PPPs).

Mr. Monga gave an overview of agriculture insurance in Zambia, where 2 out of 16 million population are smallholder farmers. Mayfair piloted its first weather index insurance in 2014 with 3000 farmers. It extended the coverage to more than 1 million farmers in the 2018/2019 season, mainly due to the Farmer Input Support Program (FISP), where the government decided to include insurance at ZMW 100 per farmer. Given the fact that there is no tradition of protection in Zambia, the company has been putting a high priority on literacy programs in multiple mediums for farmers and training in the roles/benefits of different insurance products. The company works with a variety of aggregators to offer insurance to farmers, including FISP, contract farming, farmer organization, Bank, out-grower scheme, and development agencies. The underwriting performance has been volatile for the past five years. Still, the benefits of insurance are likely to be realized gradually as the company continuously learns from the experience and synchronizes efforts with other players on the value chain to tackle systemic challenges.  A hopeful development that Mayfair pushes forward is innovation that leverages technology and data to better serve the farmers with digital insurance pilot in the upcoming season. 

Mr. Glauber presented the US crop insurance, which is the primary mechanism to indemnify crop losses to producers and has reached 85% penetration for major crops generating an annual premium of $8-9 billion. The agriculture insurance in the US is highly subsidized, offering mainly indemnity and revenue-based products, which requires farm-level historical yields to establish the rates. The USDA’s Risk Management Agency (RMA) manages the Federal Crop Insurance Corporation (FCIC) through legislation, regulation, and standard reinsurance agreement to provide insurance to agriculture producers through Approved Insurance Providers (AIP) under a PPP arrangement. Administrative and operational expense is reimbursed to AIPs to cover the delivery costs of the program. The historical experience shows that while crop insurance is relatively low cost to producers, it is a high-expenditure program to the government with the Hazell ratio (total government cost per dollar collected from the insured) above 3 in many years. There are proposals to reduce government subsidies and changes to SRA; Mr. Razzaq stressed that the government should not play a role to ensure price as it leads to market distortion. It remains to be seen if further privatization of agriculture insurance would make sense to allow APIs to compete on products and prices.

Mr. Razzaq presented the latest development in Pakistan. As part of WB-sponsored SMART Punjab (P4R), area yield index-based crop insurance was piloted for summer crops in 2018. Prior to this, there was no crop insurance to benefit smallholder farmers directly. Up to date, about 284,000 policies have been issued, protecting $150 million land assets and generating $3.25 million premium. Although there are inevitable teething issues, e.g., delayed in the process and inefficiencies caused by lack of data sharing protocol along with low insurance literacy among farmers, many pieces of training and customer education are in place for capacity building and awareness-raising. A web-based crop insurance portal is made available with a plan to digitalize CEEs. Mr. Razzaq emphasized that to make the product affordable, innovation, and data sharing is the key.

Session Three: Disruptive Technology and Agriculture Insurance

Panelists:

• Berber Kramer, Research Fellow, IFPRI
• Melanie Bacou, Head of Research, World Cover

Moderator: Fatou Assah, GIIF program manager, WBG

Video recording

Innovation is indispensable to unleash the benefit of insurance to offer financial protection to the last mile against increasing climate risks.

Ms. Kramer presented picture-based insurance (PBI) - a new, innovative way of delivering affordable, comprehensive, and easy-to-understand crop insurance that is currently offered in India, Ethiopia, and Kenya by IFPRI. The pictures taken by farmers in each growth stage are geo-referenced and time-stamped. After harvest, local agronomists analyze the images to verify losses while machine learning techniques are used to estimate damages. PBI comes with the benefits of potentially reducing basis risk, one of the main challenges of index insurance, that is, the mismatch between the payout and experience on the ground. The empirical study reveals that willingness to pay PBI is higher than traditional insurance. IFPRI’s studies also show the possibilities of using pictures to strengthen advisories in addition to improve insurance products. PBI represents a transformation in agriculture insurance where individual farmers are both insured and loss adjusters. With smartphone penetration steadily increasing globally, it is likely for PBI to enable substantial insurance uptake. 

Ms. Bacou shared the experience of WorldCover – a wholly private unsubsidized firm achieving early success selling weather index insurance to African farmers by combining external satellite weather data with proprietary weather and agronomic models. The company started to offer draught insurance in Ghana in 2015 based on market research and product design with innovations for Poverty Action. The mobile platform issues and manages digital policy, including payment facilitation based on USSD technology, which is common in application to feature phones that most rural customers possess. Although USSD has unique technical constraints (e.g., limited screen space, limited response time and session restarts on timeout, etc.), the tech team of the company has been able to apply smart user experience principles to provide an excellent experience to customers.  WorldCover has been able to offer standalone insurance, which has customer buy-in based on product design principles – simplicity, affordability, high-frequency payouts, and covers the most critical risks – to increase client value. Going forward, the company will pilot mixed index design to lower basis risk, offer coverage against new perils, and provide farmers with localized messages, including agronomic tips.