ACRE/Syngenta Foundation for Sustainable Agriculture - Kenya, Rwanda, Tanzania
Between 2013-2017 (Approx. Kenya: 992,214; Rwanda: 391,602; Tanzania: 205,584)
Insurers: In Kenya: UAP Insurance, APA Insurance, CIC Insurance Group Limited, Allianz Kenya, Jubilee, APA, Heritage, CIC, and AMACO. In Rwanda: Soras Insurance, UAP Insurance. In Tanzania: UAP Insurance Tanzania.
Reinsurers: Swiss Re, Africa Re
Delivery Channels: Seed distribution linked to a mobile network operator’s location service; agribusinesses with out-growers or contracted farmers; lending institutions(banks, microfinance institutions); savings and credit cooperatives (SACCOs) providing input loans; and medium scale professional farmers.
Weather station- and satellite-based weather index, area yield index, hybrid weather index and MPCI, and dairy livestock insurance
$76.9 million (sums insured 2017)
Supported by the World Bank Group, the Global Index Insurance Facility (GIIF) has recently completed a project in Kenya, Rwanda, and Tanzania, working with ACRE Africa (formerly the Kilimo Salama project of the Syngenta Foundation for Sustainable Agriculture). ACRE Africa, which is the brand name of Agriculture and Climate Risk Enterprise Ltd is the largest private sector index-based insurance program in both Kenya and Africa. It links farmers to insurance products that will both protect them from the losses suffered from failed crops, and allow them to confidently invest in their farms.
The project achieved the following objectives:
- Expanded access to index insurance in Kenya, Rwanda, and Tanzania. Thanks to our support, from 2014 to 2017 ACRE Africa was able to issue around 1.69 million insurance policies to farmers and generated around $7.43 million in gross premium.
- Expanded insurance offerings by developing additional products, remote-sensing, and satellite-based products. ACRE Africa launched 10 different index insurance products during the project.
- To distribute products to farmer aggregators such as agri-finance providers, agribusinesses, and farmer cooperatives, as well as to individual farmers. From 2014 to 2017, ACRE Africa partnered with 64 new distributors to offer index insurance products.
$5, Average premium 8%
The work of ACRE Africa in index insurance has demonstrated that these products can help farmers to better manage risks from climate hazards and are helping the agricultural insurance market grow in East Africa. The project has also helped to raise interest in index insurance products among insurance companies as well as government. In Kenya, a number of companies offering these products have raised from one in 2013 to 8 currently. The government has incorporated index insurance as part of its climate resilience strategy.
This project has provided valuable lessons that have been incorporated into similar projects in other countries in the continent. An aspect of the project that was key to its positive results was ACRE Africa’s pioneering approach to distribution of index insurance products through intermediaries that could easily aggregate smallholder farmers. This model has been replicated in various countries and is now considered key for index insurance products to be feasible. The project also provided lessons on ways to better manage basis risk, which is one of the main challenges for index insurance attractiveness for insurance companies and farmers.
- The key to success has been offering a holistic solution to mitigate weather risks, not just insurance. ACRE Africa’s extensive understanding of agricultural risks enables them to develop customized insurance products using mobile technology, bundled with agricultural advisory services, weather data, local access to quality inputs, and input credit. ACRE Africa’s products have encouraged credit institutions to enter into agricultural lending by mitigating weather-related repayment risks.
- ACRE's team of specialists models crop risks, develops crop indices, manages climate data, develops insurance products, educates farmers, and creates distribution channels for the insurance. A major success factor for ACRE has been this knowledge hub of experts located in Nairobi, Kenya. ACRE is one the first agricultural insurance programs worldwide to reach smallholders using mobile technologies. Farmers can “try out insurance” by insuring as little as one bag of seed. Insuring one acre of maize against drought costs a farmer ≈ 37 USD, or 10% of harvest value. Any payout is transferred to the farmer’s “mobile phone wallet” at the end of the season.
- Although great strides have been made, uptake of agriculture insurance is still slow. Insurance is a high-volume business: the higher the number of customers that take out insurance policies, the more risk exposure can be diversified, resulting in lower premium prices. Since index insurance in Africa is still in its infancy, lack of awareness of its advantages, and low uptake mean that volume in this industry is still less than optimal.
- In many African countries, financial literacy levels are still very low, particularly in regard to insurance. Many in this target demographic do not have access to formal banking structures, let alone affordable insurance products.
- One of the barriers to expansion is access to reliable long-term data on which to base agricultural insurance indexes. For index insurance to be affordable and accurate, 10-20 years of historical rainfall or yield data is required. Collecting, verifying, and analyzing this data is the most time-consuming process in product development. Where such data is not available, ACRE Africa has invested in cutting-edge satellite data and is testing analytical techniques in order to generate the most accurate proxy.
ACRE Africa's new hybrid product, which combines a weather index and multi-peril crop insurance (MPCI) cover, provides a solution to current gaps in the insurance market. Unlike pure peril weather index products, this new product provides cover for diseases such as maize lethal necrosis disease (MLND) and pests. Unlike current pure MPCI products, it provides a full season of coverage, including during crop germination: its innovative replanting guarantee provides coverage against insufficient rainfall during the critical germination period for maize. When the rains fail after an insured farmer has planted his crop, the insurance provides a payout so that he or she can repurchase and replant seeds in the same season.
Rahab Kariuki, Managing Director, ACRE Africa - rkariuki@acreafrica.com
Shadreck Mapfumo, Senior Financial Sector Specialist, IFC - smapfumo@ifc.org