Building off our previous feature on the insurance sector in Africa’s agricultural value chain, we recently spoke with Joost van der Woerd of the Environmental Analysis & Remote Sensing (EARS) in the Netherlands. EARS works with MUIIS (which stands for Market-led, User-owned ICT4Ag-enabled Information Services), a project led by the Technical Center for Agricultural and Rural Cooperation that links farmers to satellite data that helps them improve their crops and their yields.
Through this partnership, EARS works to both capture and provide satellite data and incorporate it into data models that are used to assess risk and the viability of agricultural insurance for individual farmers. Currently, EARS works with approximately 70,000 smallholders in Uganda, and they anticipate they will scale to 150,000 in the next two years – a growth that they expect to be catalyzed by greater government subsidies for insurance.
Acknowledging the low rates of insurance adoption among farmers in Africa, Joost said his team works to create new products that are more appropriate for farmers on the continent than the indemnity policies traditionally seen in the U.S. and Europe, where farmers pay premiums, file claims when loss occurs, and insurance companies send specialists to assess the losses.
“Traditional solutions are not something that will work well for smallholder farmers in Africa, because they are very hard to reach and they are typically farming very small plots of land,” he said. “So it becomes expensive for insurance companies to send agents to do assessments and, also, the expertise is not there to do those kinds of assessments. There are all kinds of operational problems and the costs involved mean that those insurance products are not viable solutions.”
To work around these issues, Joost and his team work to provide different options to farmers in the way of index policies, where farmers are purchasing premiums to insure against weather conditions versus the physical components of their crops. For example, a farmer could take out a drought index policy, which would cover him or her in the event that rainfall patterns were lower than average in his or her region. If rainfall patterns are lower for a farmer, then it is deemed a loss and a payout is issued accordingly.
In Uganda, EARS works with an insurance consortium of the country’s largest insurance companies. The consortium develops the products for its members, and also lobbies the government for greater insurance subsidies for both small and large farmers, which makes insurance products more affordable. EARS supports the increase in subsidies, as Joost says the insurance sector in Africa is just not viable without them.
“If you look at traditional agricultural insurance outside of the developing world, you’ll see that everywhere it’s heavily subsidized,” he said. “And it’s really quite simple: the risks in agriculture are high and the frequency of loss events are also high, so it means the premiums are very high … With subsidies, farmers can afford to get insurance for the simple fact that over the long run you will get paid out about the same that you paid in premiums, so it makes it a savings proposition, which is, of course, what insurance is intended to be.”
EARS has initiated pilots in over 18 countries and currently works in Senegal, Mali, Burkina Fasa, Cameroon, Benin, and Uganda. Joost says he is encouraged by the opportunities he sees currently in the insurance sector in Africa, though he acknowledges there is a lot of work to be done.
In terms of opportunities, Joost says the biggest are government subsidies (which are taking off in Uganda and Senegal) and the improvements he sees in operational efficiency.
“On operational efficiency, we have access today to more and more data, and data continues to get cheaper. We see it coming in in real time and in higher resolutions, archives are getting bigger, and systems are becoming more standardized,” he said, adding that better, cheaper data allows companies like EARS to automate and scale and improve the feasibility of the products they’re offering.
In terms of challenges, Joost says the insurance sector in Africa still needs to diversify its products to better serve farmers. This, he said, could be furthered through better integrations with the finance sector and helping farmers access finance. He also hopes to see better coordination and collaboration among all of the stakeholders working in the African agricultural value chain, as he, like the World Food Bank, sees the need to address all sectors in tandem so that they will all work to the benefit of the system.
“In Africa, the concept is to address everything,” he said. “But that’s difficult when there’s a lack of coordination.”