Crop insurance potential to drive smart agriculture in Africa


Most farmers in Africa rely on rainfed agriculture, and their production system is most vulnerable to climate-related events.

These loss-triggering perils are responsible for the reduced food security on the continent. Therefore, it is imperative to find appropriate risk mitigation and transfer solutions to ensure uninterrupted production and processing systems.

  • Farmers purchase crop insurance to protect against either the loss of their crops due to natural disasters or the loss of revenue due to declines in the prices of agricultural commodities.
  • The National Bank of Commerce (NBC) in Tanzania have an Agricultural Insurance product in collaboration with Jubilee Insurance Company, aimed at protecting farmers, fishermen, and livestock keepers in the country against losses when they experience various disasters that may affect their production.

It is important to look at the entire food production and processing value chain, minimize or eliminate food leakages, and add risk transfer solutions such as crop insurance to close the loop.

Read: Organic farming a prototype for sustainable agriculture in Africa

Role of crop insurance in smart agriculture

The insurance sector, over time, has curated products that contribute to the protection of the different aspects of living, individual and corporate bodies. The agriculture sector has not been left out, with the provision of appropriate insurance products to minimize the impact of these loss-triggering events on food security.

Insurance companies provide adequate financial compensation in a timely manner to enable the sourcing of required food resources without waiting for government or donor assistance.

Annual economic impacts of natural disasters on select African countries from 2000 to 2018. (Photo/ Brookings)

Insurance provides farm income stability by compensating the losses to the farmers in a timely and efficient manner. It ensures that the farmer is kept on the farm doing what they know and loves best, farming, thereby contributing to food security.

The majority of the farming community in Africa generally operates on thin margins. Most do not have title to land or any bankable assets that they can use as collateral to access finance for the much-needed inputs. By using the insurance policy as collateral, the farmers can access the finance they need, source the right inputs on time and be more productive per unit area, thereby contributing to the food security of their country, apart from also creating their own margins.

The National Bank of Commerce (NBC) in Tanzania have an Agricultural Insurance product in collaboration with Jubilee Insurance Company, aimed at protecting farmers, fishermen, and livestock keepers in the country against losses when they experience various disasters that may affect their production, according to Tanzania Daily News.

“We are very close with the agricultural sector, and that’s why further we always appreciate the contribution of farmers to the country’s economy. Based on the same fact, we considered it good to come up with the agricultural insurance product for farmers and that in proving the effectiveness of the product, it is only recently we compensated the tobacco farmers in the Tabora region whose crops were affected by the bad weather,” noted NBC Bank Head of Small and Medium Enterprises (SMEs), product and Agriculture Department, Raymond Urassa.

Read: Crop insurance to ensure food security and poverty reduction

Digital agriculture and crop insurance

The digital transformation of the African insurance industry is making steady progress driven, particularly by the arrival of InsurTech players. (Photo/ Resilient Digital Africa)

The penetration of risk management solutions in agriculture in Africa remains low, despite the sector’s high vulnerability to the impacts of climate change and market inefficiencies.

In addition, the lack of enhancing technology needed for early warning and weather & climate observation systems also impacts the way the African continent perceives risk and adapts to the impact of the risk factors that threaten food security.

According to an article published by World Bank on June 15, 2022, one such innovation designed to increase smallholder farmers’ resilience to climate change is weather index-based insurance, which leverages technology to help farmers manage climate risks.

Acre Africa, a beneficiary of the World Bank’s One Million Farmers Platform (OMFP), is one group in Kenya that has ventured into these new technological territories. It offers farmers tailored crop insurance plans to help them mitigate crop failure due to adverse weather patterns. This is accomplished through the use of a micro-insurance product known as Bima Pima, which loosely translates to “insurance in affordable bits.”

“At the start of the agricultural season, a farmer buys a Bima Pima scratch card with a bag of seeds or fertilizer, activates the card through his phone, pays an initial premium of KES 50 (US$0.50 cents), and can top up via SMS to increase the level of insurance coverage. ACRE Africa then geo-tags the farm using the mobile localization service,” said Muthithi Kinyanjui, Head of Partnerships and Market Systems, Acre Africa.

A combination of satellite and weather station data then determines whether the farmer will receive a payout directly on his mobile account in case of drought or excess rain on his land. The mix of smart design and digital innovation offers the farmers the ease of buying scratch cards at local agri-dealers, the use of the system, the capability to top up, and the options to pay for the premium in small amounts and over time.

Simon Schwall founded Oko in 2020 to provide low-cost crop insurance for small farmers, with a mission to help overcome income distribution insufficiencies for those who feed the world. The Israeli-based start-up partnered with local phone operators and mobile payment processors in Mali and Uganda to set up the service.

According to an article published by Microsoft on June 14, 2022, Oko uses the concept of index insurance to reduce costs. Many insurance policies have administrative costs pre-built to account for claim verification, assessments and other cost uncertainties. Index insurance utilizes data analysis and risk calculation rather than onsite inspections to build a cheaper, more accessible policy for rural customers.

Farmers sign up for Oko using their mobile phones. Oko then uses historical data and weather data to analyze the insurance risk and determine the policy cost. Suppose the real-time data shows a serious drought or flood. In that case, Oko pays farmers immediately, eliminating the need to file a claim and ensuring farmers bounce back from a poor season much faster than before.

Having some assurance that their labour won’t be completely lost if there are weather problems is a huge relief for those farmers with their eyes on the sky and their hands in the dirt.

Read: Ensuring Africa’s food security by adopting climate-smart techniques

Albert is a Chemical Technologist and Author. He is passionate about mining, stock market investing, Fintech and Edutech.

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