Smallholders have widely varying access to inputs, credit, aggregators and contracts. So our team has developed, tested and refined a diverse portfolio of agricultural insurance products to match.
Weather and yield indices keep premiums low
These products use weather or yield data instead of on-farm observations. Traditional agricultural insurance relies on expensive field visits to assess losses. We develop products that use rainfall data monitored by automated weather stations or satellites. Using carefully correlated indices instead of field visits, the products can be distributed far more cost-effectively. Staff can look after many more farmers.
The rainfall data are linked to agronomic models. These divide the growing season into phases from germination to harvest. Many crops such as maize/corn, rice, wheat, potato and coffee need varying amounts of rainfall throughout the season. Drought, excess or badly-timed rain can all harm the crops.
In addition to weather insurance, AIS also develops yield-based products based on local data. Yield products can cover farmers against losses from disease and pests, in addition to flood damage. Flooding is a serious concern for rice growers, for example.
Our index models automatically trigger any necessary pay-outs, so farmers do not need to submit claims. The system is therefore highly objective and transparent.
Insurance improves loans access for smallholders
Access to affordable agricultural credit at the start of the season is essential. Loans enable farmers to purchase improved seed, fertilizer, crop protection, and other inputs. Combining agricultural insurance with the financial products offered by banks and microfinance institutions is, therefore, a natural step. The insurance protects credit institutions against widespread default after bad weather and farmers against the inability to repay loans after a poor harvest. Agricultural credit and insurance are complementary products; together, they can reach more and more smallholders.
Credit-linked insurance brings together aggregators (e.g. a microfinance institution, bank, contracting agribusiness, or input company) and the smallholder beneficiaries. Aggregators are usually familiar with insurance and aware of their risk exposure on loans, particularly due to bad weather. Smallholders generally have little experience with insurance; significant financial education and communication are therefore required. Farmers need to know about the products before they can decide to request them. We organize various kinds of training and educational programs among the farming communities to create awareness and demand to fulfill their financial needs and insurance requirements.
The loan-giving institution ideally prepays the premium on the smallholders’ behalf. Repayment follows after harvest. If there is an insured loss, the amount to be repaid is reduced. These products are often compulsory on all loans from an organization: if farmers want to access credit, it comes with insurance. This combination helps to create, grow and maintain a market for agricultural insurance products.
Mobile phones increase insurance reach and efficiency
Mobile use is extensive and growing throughout Asia. This provides a new means to reach and register farmers who are using improved inputs but may not be otherwise organized in large groups for easy insurance distribution. Our first product here is essential ‘insurance in a bag’. An input company pays the premiums and farmers then follow instructions in the bag (e.g. of seeds), registering via SMS. Corresponding data from mobile phone companies then enable identification of the farmers’ location and therefore of their weather. If conditions trigger a payout, this goes straight to farmers via mobile phone.