Rahab KariukiMicro-insurance Learnings

Nairobi, July 2014

This is why we use index insurance: a new kind of insurance that helps farmers cope with climate risks and does not require farm visits.

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ACRE approaches insurance as if we were farmers

Large scale farm: $1000 Premium - $50 Visit Costs + $950, insure

vs.Small scale farm: $10 Premium - $50 Visit Costs - $40, can’t insure

One single bad season affects a farmer for years. During one drought season, smallholder farmers can loose their entire harvest and lack the money to buy quality farm inputs the next season. Traditional agricultural insurance has not been able to protect them as it relies on farm visits to assess losses.

The Challenge

Overview

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Mandate: Develop and implement agricultural insurance products for smallholder farmers

Kilimo Salama/ ACRE started in 2009 by Syngenta Foundation and UAP Insurance in Kenya with 185 maize farmers

ACRE is an insurance surveyor doing product development, contract pricing and monitoring, client interface

Insured (through local insurance company, reinsurer) over 145,000 smallholder farmers in 2014 in Kenya and Rwanda, soon to launch in Tanzania

Risks Faced by Micro Insurance Providers

1. Product design risk– Too many risks all of which cannot be insured– Do not meet consumer expectations– Need high quality products

• Faster claim settlement• Fewer exclusions• Wider coverage

Risks Faced by Micro Insurance Providers

2. Moral hazard- – Remoteness makes it difficult to verify– Clients can gain a lot and lose little

3. Adverse selection- Individuals predisposed to risk more likely to insure Distorts risk pooling

5. Pricing– Need to balance coverage, sustainability and affordability

Risks Faced by Micro Insurance Providers

6. Inadequacy of distribution channels– Challenge is to minimize distribution costs

7. Income variability- – Informal sector– Low and unpredictable– Should be able to pay when they have money

8. Regulatory risk

Business Model: a social business in the insurance sector

Primary Insurer• Carries primary risk• Policy documentation• Claims Payment

ACREHead Quarters in Nairobi• Product development

Local offices (Kenya, Rwanda as of 2013)• Marketing and Distribution• Financial education• Data collection

Income from operating margin charged on premiumAny profits are reinvested in the companyAll regulated entities as per local insurance acts

Re-insurersPricing, reinsurance

Partners: Agribusiness/ Banks/ MFI’s/ NGO’s/ Mobile

Operators• Insured on behalf of farmers• Advance the premium • Inform individual farmers• Disburse compensation

Farmers Access services including

insurance

Mixed Weather and Yield Insurance

Client-specific Communication and Registration

Are interested in the harvestBuy the harvest

Improve farmers incomes

Mass Market

Simple product- Germination cover

Simple explanation-

Radio jingle 21 days no rain

Simple registration-

SMS

Contract FarmersTailored Product

Farmer termsheetRegistration via policy

document

Agribusiness/MFI

Tailored ProductTerm sheets signed by bank managers

Farmers insured for loan values

Current Product Portfolio and Partnerships

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Crop Covered Risk Covered Ag Package Covered

Target Farmer Distribution Partner

Maize, Beans, Potatoes, Sorghum & Millet

Weather and Yield cover

Ag-Credit for Inputs & Training

0.5 acres

Maize and Beans Seed

Weather and Yield cover

5-1000 acres

Coffee/ Tea Weather cover 1- 200 acres

Livestock Animal Mortality Value of animal and Veterinary care

Owns 2-3 dairy cows

Maize Germination of hybrid seed

Seed Bag 1 acre = 8 bags of seed

Wheat Weather cover Ag-Credit for input package

+200 acres

A product developed for a 1/4 acre maize farmer in Rwanda can also serve a 1000 acre maize farmer in Kenya, allowing for our team to leverage technical design product features.

In 2012 our insured farmers in Kenya invested nearly 20% more in their farms and earned 16% more income than neighboring uninsured farmers.

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Rahab@kilimosalama.com

www.uapkenya.com

www.syngentafoundation.org