Scaling up crop insurance for smallholder farmers in Ethiopia

Innovative vegetation-index crop insurance for smallholder farmers combined with cloud micro-insurance.

(Frankfurt, Addis Ababa) A new project in Ethiopia up scales innovative vegetation-index crop insurance for smallholder farmers and combines it with a cloud micro-insurance and payment platform to increase drought resilience of vulnerable populations.

For a large proportion of Ethiopia's rural population, smallholder agriculture is the predominant activity. Smallholder farms indirectly support about 70 percent of the population and contribute to more than 40 percent of the country's GDP. The El Niño-related drought of 2015 led to one of the greatest food insecurities ever recorded for more than 10 million people in Ethiopia. To protect smallholder farmers from income shocks arising from severe and catastrophic weather risks, particularly drought, a partnership of local and international stakeholders has formed to offer farmers access to climate risk insurance.

Ethiopian InsurTech provider and project leader Kifiya Financial Technology partnered with the public Ethiopian Agricultural Transformation Agency (ATA), and the local Oromia Insurance Company as risk taker to develop a vegetation index crop insurance product. This insurance product was prototyped in 2016, and piloted over the following two years. So far, 12,000 smallholder farmers have purchased the product and around 5,300 farmers have received payouts.

To adapt the insurance product with lessons learned and scale it up, the InsuResilience Solutions Fund (ISF), managed by Frankfurt School of Finance & Management (FS), and financed by KfW Development Bank, has signed a grant agreement with the partnership. ISF is providing co-funding for the product development and implementation of the agricultural insurance solution.

The product is distributed through village insurance promoters, who primarily provide information and educate smallholders about the insurance options available. Agents of financial institutions, unions and cooperatives then sell the product and collect the premiums. This dual point of contact helps to improve farmers' understanding of the product.

In addition, the insurance product is combined with innovative IT solutions. A cloud micro-insurance platform supports insurance companies in digitally managing insurance policies and claims, helping to reduce operational administration costs. Moreover, insurance companies can reach out to their potential customers through agents located in their vicinity. Another feature of the IT solution is a payment platform. Through an app, sales agents can make payouts to farmers or the insurance company can transfer money directly to farmers' bank accounts.