Agriculture is the backbone of African economies. Yet crop diseases and bad weather make farmers highly susceptible to losses and hunger. Still, according to The World Bank, only 6% of farmers in Africa have any form of agricultural insurance.
This is perhaps not surprising when you consider that according to a 2012 report [PDF] Africa registered an insurance penetration ratio (gross value of insurance premium as a percentage of GDP) of 3.65% way below the global average of 6.5%. While the insurance density (ratio of premiums per capita) in the continent is the lowest in the world at just a tenth of the global average.
Now ACRE Africa is seeking to solve this problem by using mobile and satellite weather monitoring technology to provide agri-insurance. The aim is to cover smallholder farmers against agricultural risks in East Africa.
"Excessive or erratic rains and drought threaten the livelihoods of billions of farmers in developing nations…" Rahab Wambui Karanja, ACRE Africa Managing Director tells IDG Connect.
"These farmers who farm on two acres [of land] or less are among the most adversely affected by weather-related risks. After a bad season, they can lose their entire harvest, become indebted and lack the funds to buy quality seeds to start the next growing season. As a consequence, farmers are unlikely to invest in their farm and never make full productive use of their scarce land resources. Our products enable these farmers access to affordable insurance that mitigate their risks and also unlock access to agricultural credit."
Started as Kilimo Salama (Swahili for "Safe Agriculture") project, the company evolved to Agriculture and Climate Risk Enterprise (ACRE) Africa and was launched in 2014. It is not an insurance company, but a social enterprise and service provider working with local insurers and other stakeholders in the agricultural insurance value chain. Products are distributed through financial institutions, agribusinesses and retail businesses. ACRE has presence in Kenya, Tanzania and Rwanda.
In practice the agro-shop owner is supplied with a mobile phone. When a farmer buys seed or fertiliser and wishes to buy insurance too, the shop owner scans the bar code on the products and collects an additional five percent of the retail purchase price of products. The seed and/or fertiliser company chips in another five percent. The combined payment is sent to the insurance company via the phone.
There are also small weather stations installed in the regions covered by this insurance arrangement. No one can make false claims, because these stations are designed to automatically monitor the weather conditions. If the rains fail/fall too much, insurance is remitted automatically through the farmers' mobile money accounts.
"Weather index based insurance offers a method to insure farms as small as one acre by replacing costly farm visits with measurements from weather stations as the indicator of drought conditions. The weather stations measure the rainfall and these measurements are compared to an agronomic model specifying crops rainfall needs," Karanja explains.
"While insurance commissioners and policy makers at the government level are eager to have agricultural insurance products in their countries to help smallholder farmers against climate shocks, poorly conceived regulations and registration processes can prevent such products from reaching the markets, at an affordable cost," Karanja adds.
In a region where mobile connectivity is not a problem, the innovation was bound to make strong headway. Within a short period of time, ACRE Africa has been able to disrupt, support and revolutionise the insurance sector with the MD confident that she is headed to the right direction.
"Cumulatively, by 2015, over 800,000 farmers in Kenya, Tanzania and Rwanda insured over $58.62 Million against a variety of weather risks underwritten by UAP Insurance Kenya, UAP Insurance Tanzania Ltd and SORAS Insurance Rwanda," Karanja says.
Funding has not really been a problem, she adds. "ACRE Africa was established and funded by the Syngenta Foundation for Sustainable Agriculture (SFSA) and the Global Index Insurance Facility (GIIF). We are also funded by other investors such as Lundin Foundation, LGT Venture Philanthropy and Grameen Credit Agricole."
Social issues can prove a hindrance though. "Mistrust and negative past experiences with insurance causes farmers to be resistant to trying crop and livestock insurance products," she explains. "This mistrust takes time to overcome, and we must work hard to let farmers know that the local insurer and our company will not ‘disappear' with the premium."
In addition to its core business in crop insurance products, the startup has evolved to cover other insurance such as livestock insurance (in case the farmer loses an animal), credit life insurance (to cater for loans outstanding upon death of the farmer) and death/funeral insurance to cover funeral expenses in case the farmer dies.
"Our long-term goal is to reach West and South Africa," Karanja concludes.