In Sub-Saharan Africa, only 3% of the 48 million smallholder farmers have insurance. These farmers typically own 1 acre of land and earn about $1.40 per person per day. They engage in a combination of cash crops and subsistence or non-commercial farming, lacking the financial and technological resources of large-scale industrial farms. With the increasing frequency of extreme weather events due to climate change, a single flood or drought can push these farmers into a cycle of poverty without crop insurance protection.
Benson Njuguna, an Ethereum Foundation Fellow, shares an update on his mission to improve the economic situation of humanity through technology-driven innovative ideas. He works at ACRE Africa, a microinsurance service provider in Kenya. ACRE Africa and similar businesses support farmers by offering risk management solutions and agricultural insurance products to address the uncertain livelihoods farmers face. However, one challenge is that farmers have a negative perception of insurance providers due to delayed or absent payouts in the past. Farmers are not used to receiving important information about their policy, such as confirmation of a payout for incurred losses.
At ACRE Africa, a typical smallholder farmer with a half-acre plot pays around $5 per season for weather-index crop insurance, which makes payouts based on predetermined weather data like rainfall. Losses from adverse weather conditions result in a payout of about $50, enough to cover farm inputs like seeds and fertilizers. However, low premiums make it difficult for insurance businesses to break even, let alone turn a profit. To address this, cost-saving measures through digitization and automation are crucial for both the commercial viability of insurance businesses and the affordability of insurance premiums for farmers.
The current crop insurance payout system presents challenges for farmers. In Kenya and the region, farmers’ lives revolve around the long rain season (April to July) and the short rain season (October to December). Farmers begin buying insurance for the first cycle of the long rain season in April. However, if a weather event occurs during the insurance period, farmers receive payment only after the following season has started. This delay can cause financial loss and difficulties for farmers in continuing their farming activities.
ACRE Africa offers a solution called BIMA PIMA, which means insurance in small installments. This product, developed in partnership with Etherisc, utilizes a decentralized insurance platform on Ethereum. Farmers purchasing seeds for the season receive a scratch card with a unique registration code. The basic insurance cost is included in the seed price, and additional coverage can be purchased through M-PESA, a mobile payment network. Farmers activate their insurance policy while planting the seeds, using SMS/USSD. The activation process gathers essential details like location, phone number, crop type, and coverage amount. These details are passed into the policy smart contract on the xDai chain, resulting in automatic policy creation. Farmers immediately receive a text message confirming the policy activation. The alternative system relies on actual and historical weather data to trigger claim approval during specific phases of the farming season. The payout is based on pre-defined criteria rather than human assessment. Farmers receive payments throughout the ongoing season and can check their insurance policy status through a mobile device. The aim is to build farmers’ trust by providing relevant information, faster payouts, reduced insurance costs, and an audit trail.
This year, ACRE Africa made its first payout to a farmer named Samuel, who had purchased an insurance policy for maize seeds. As of now, there have been 511 mid-season payouts and 4,021 end-season payouts. While the new system improves the current insurance systems, there are still challenges to address. Payouts are not fully automated yet, and processing times for claim approvals need improvement. Claims still require manual approval, leading to delays. Additionally, parties outside of the project, such as insurers, reinsurers, and regulators, have their own standalone systems, causing bottlenecks.
Looking ahead, ACRE Africa aims to share relevant information about policies with all stakeholders through customized dashboards. The goal is to have a single system with a complete audit trail accessible to each stakeholder. The BIMA PIMA insurance product serves as a model to build trust between farmers and insurance providers. Benson, the Ethereum Foundation Fellow, is passionate about using technology to help his community and believes in the decentralization of developing countries’ economies. The Fellowship Program encourages continued engagement and invites those interested to reach out via email. Furthermore, Benson can be contacted through Twitter, and there are other Fellows available to connect with or to learn more about the program online.