Weather-based index insurance: a climate-smart agricultural solution for smallholder farmers

Weather-based index insurance (WBI) has been one of the key components of CTA’s flagship project "Scaling-up climate-smart agricultural solutions for cereals and livestock farmers in Southern Africa", which began in August 2017. The project aimed to increase food security, nutrition and income for 140,000 rural smallholder households affected by changing climatic conditions within maize-livestock based farming systems, by upscaling proven climate-smart agriculture solutions – such as insurance – in Malawi, Zambia and Zimbabwe. The project adopted a bundle of solutions in which, alongside insurance, farmers are offered access to drought tolerant maize, weather information services and diversified livelihood options.

Traditionally, these farmers have not been targeted by insurance companies, partly because of the high costs of dealing with individual farmers in rural areas. Yet, farmers often lack adaptive capacity, which makes them vulnerable to climatic uncertainties. Index-based insurance shifts the risk from farmers to the insurers, as compensation is provided in the event of climatic or weather-related crop-loss. In this project, total annual rainfall is used as an ‘index’ to trigger insurance pay-outs. Hence, farmers get paid when drought or prolonged dry spells significantly impact crop production, and the pay-out allows farmers to purchase agricultural inputs (specifically seeds) to replant lost crops, thereby supporting farmers’ adaptive capacity and enhancing their resilience to climate change.

Mobile phones have been the key enabling technology in this project; farmers subscribe in order to benefit from the insurance product and associated services via their mobile phone. In April 2018, the project adopted USSD, which does not require internet connectivity, thus ensuring easier access for farmers in remote locations. Furthermore, local agricultural extension and insurance agents or partner staff carry out digital registration and farmer profiling via mobiles. Mobile phones are also used to provide e-extension services on weather and agricultural advisory messages.

Tailored partnerships and services

From the outset, key stakeholders were consulted to avoid reliance on donor-funding and ensure long-term sustainability of the project. As a result, implementation was steered by partnerships between farmers’ organisations, private sector stakeholders, development organisations, knowledge institutes and public partners. To promote the scaling up of WBI, the project has used a three-pronged approach:

In the three target countries different financial and business models have been developed to support WBI service development and delivery.

Zambia

In Zambia, the implementing consortium consists of a knowledge institution (the Zambia Open University), an insurance company (the Professional Insurance Company of Zambia) and a rural development organisation (Musika Development Initiative). Data is sourced from the National Agricultural Information Services – a specialised wing of the Ministry of Agriculture and Livestock that supports extension services through the dissemination of agricultural information.

In Zambia, WBI is subsidised for all smallholder farmers who are eligible for the Farmer Input Subsidy Programme; subscription to the insurance product and payment of a relatively small insurance fee are now conditional for access to the subsidy. This programme is coupled with training to ensure that farmers understand the concept of the insurance and its benefits.

Malawi

In neighbouring Malawi, the National Smallholder Farmers Association of Malawi works in collaboration with the Malawi Meteorological Services and the Department of Agricultural Extension Services for weather information and for extension messaging, respectively. Based on a baseline study to determine smallholders’ willingness to pay for insurance, a WBI product that meets farmers’ needs, while ensuring a return on investment for the private insurance partners, is currently under development.

Zimbabwe

The Zimbabwe Farmers Union (ZFU) sources data from international climate information service company aWhere. As such, it has access to local satellite-based weather data. Econet Wireless – a private sector entity that is a key project partner in Zimbabwe – offers the EcoFarmer ‘combo’; a combined service for weather alerts, farming tips and index-based insurance, which allows farmers to insure their crops against the risk of excessive rainfall or drought for US$1 per month.

Field surveys commissioned at the start of the project showed that farmers’ awareness on WBI does not automatically translate into uptake; although 60% of sampled farmers were aware of WBI, only 16% had signed up for it. Packaging WBI with other accepted services, such as life/funeral insurance and farming advice helped ZFU to overcome adoption barriers.

Enabling insurance adoption through bundled services

The project found that data and information alone is not enough to help farmers. Many farmers did not have the ability to interpret information and data received via mobile phones pertaining to weather forecasts, so needed additional support to use it to make informed decisions regarding their farm activities. This was addressed by ensuring that extension officers working in project target areas also subscribed to the service and had access to information from the digital portal for farmers. This way, they received the same information and data that farmers received and they could better support farmers’ queries in their area. The data delivered via SMS, or accessible via the mobile portal, could therefore be used as a ‘toolkit’ for field-based extension staff. “Extension workers play a pivotal role in interpreting weather information for farmers. Once registered, even farmers who are not on the ICT platform benefit through the extension workers daily advisories,” says Prince Kuipa, an economist with ZFU.

Securing sustainability

The project is anchored within well-established innovative partnerships that include farmer organisations, the private sector and governments, and the project goals are well aligned to the overall objectives of the partnerships, hence ensuring continuity after the project finishes. Strengthening these partnerships to ensure sustainability has been achieved by facilitating the development of memorandums of understanding between partners and fostering the inclusion of climate-smart solutions into the partners’ long-term strategies; insurance solutions have hence become a key component of partners’ investment and project implementation strategy.