“I paid 20,000 CFA francs (€30.50) to ensure my [bean] harvest, and after the drought destroyed everything, the people at OKO paid me 30,000 CFA francs (€45.70). I was really surprised, it’s a really good deal! With this money, I was able to buy a 25-kilo bag of rice to feed my family. I’ll definitely be taking out insurance again,” says David Gasso Kobly, a small-scale cocoa farmer in Côte d’Ivoire. This father of five, aged around fifty, is still amazed.

In Bahompa, his village of nearly 10,000 inhabitants, 70 kilometres south-west of Yamoussoukro, several farmers like him have taken out the weather index insurance offered by OKO – an Israeli company that designs technology-based insurance products, known as ‘insurtech’ – and are delighted to be able to withstand the impacts of a catastrophic cocoa harvest.

Based on data sensors and satellite images, ‘index’ insurance provides real-time information on rainfall levels associated with drought or flooding. In the event of adverse weather conditions, it provides for automated compensation proportional to the severity of the event, paid directly into the mobile accounts of insured farmers who have suffered damages.

While more ‘traditional’ insurance policies – which pay compensation several weeks after an expert has assessed the losses – are struggling to gain a foothold in African markets, these ‘new generation’ policies are managing to convince farmers, who are increasingly hard hit by climate change.

Less costly, more transparent and quicker to implement, but also more profitable for insurers, these index-based solutions against weather risks are mainly being developed in the countries of the Sahel and East Africa, breaking down barriers to market access. In Africa, the insurance penetration rate (total premiums as a proportion of GDP) remains low, at less than three per cent across all segments, according to Standard Bank.

Technological and digital innovation

Since its launch in Mali in 2021 and in Côte d’Ivoire the following year, OKO, in partnership with the insurer Allianz and the telephone operator Orange, has insured some 24,000 and compensated nearly 4,000 smallholder farmers growing maize, cotton, sorghum, groundnuts, sesame and cocoa. In Mali, the average annual premium paid by a farmer amounts to €13 per hectare for one season. In Côte d’Ivoire, the annual premium is €24 for two seasons, on average. The smallholders who were paid compensation received around 25 per cent of the insured amounts, which helped them to prepare for the next season.

In Kenya, ACRE Africa offers its index insurance via a scratch card sold with bags of seed or fertiliser. When farmers activate the card on their phone, they pay an initial premium of 50 Kenyan shillings (€0.35) for cover and can increase the level of cover by topping up by text message. At the same time, they send information to ACRE Africa, which geolocates the farm.

Capitalising on technological and digital innovations, index-based agricultural insurance is proving its worth, contributing to the climate resilience and the economic resilience of smallholdings.

A recent evaluation by the Luxembourgish NGO ADA (Appui au Développement Autonome), which supports microfinance in developing countries, concludes that it enables farmers to secure their present and future income, to receive rapid compensation, to continue buying inputs, to prepare for the next season and even to obtain credit more easily from local banks.

“According to the first surveys carried out on the ground with producers’ cooperatives, index insurance is very popular and the rates seem to be affordable,” says Caroline Morilhat, programme manager at ADA. Agricultural insurance could ultimately help prevent a portion of the rural exodus expected as a result of climate change.

“Our aim is to test and experiment with new solutions,” adds Morilhat. The organisation’s focus is on nomadic livestock farmers in West Africa.

For several months, ADA has been closely following the index-based insurance designed by the Luxembourg start-up Ibisa for Senegalese livestock farmers, in cooperation with the Billital Maroobé Network (RBM), representing pastoralist livestock farmers’ organisations in the Sahel, and Senegal’s national agricultural insurance fund, the CNAAS.

Increasingly vulnerable nomadic livestock farmers

“Until now, the best form of protection was to have the information required to be able to take the animals where they can pasture. Another was to keep animals of five or six years old that are more resistant to drought and can be sold during hard times. But, with one drought after another, it is becoming increasingly difficult to manage, making farmers more vulnerable than ever before. And when farmers lose half of their livestock to climate hazards, it can take them over fifteen years to recover their losses […]. Senegal has 350,000 pastoralist families. Bearing in mind that the average family is made up of eight people, that’s a lot of people,” says Aliou Samba Ba, president of the RBM in Senegal and a livestock farmer with around 50 head of cattle.

After developing index products for almost 700 livestock farmers in Matam and Podor in northern Senegal, Ibisa is now targeting 4,000 Senegalese livestock farmers for the 2023-2024 season and “is looking to fine-tune its data”, says Manon Loison, Ibisa’s Senegal and West Africa project manager.

The start-up aims to offer its technical solutions to the whole of Senegal, and then to the whole of the Sahel, which has 173 million head of livestock. The product offered to nomadic livestock farmers is 50 per cent subsidised by the CNAAS, and costs FCFA 5,000 (€7.60).

“We have several types of cover, July-August and September-October, with a rainfall index corresponding to these two periods, as well as three alert levels, ranging from moderate drought to critical drought. If the rainfall thresholds are not reached, a payout is triggered and isn’t linked to the declaration of livestock losses […]. We work on the principle that whenever there’s drought, there is less fodder available and the animals are therefore at risk,” explains Jean-Baptiste Pleynet, a co-founder of Ibisa and an actuary (specialising in statistical calculations for insurance companies). The aim is to enable farmers to quickly buy feed for their animals.

But drought is not the only problem. Too much rain or flooding can prevent pastures from developing properly. In such cases, rainfall alone is not a relevant criterion, preventing the compensation of farmers when fodder is not available. To overcome this shortfall, Ibisa is working on new models to incorporate the concept of “effective rainfall” and allow de facto compensation to be paid after 20 continuous days without rain.

“We would have liked grazing-related risks to be covered. But measurable rainfall criteria, reflecting historical trends, were chosen […]. In the past, farmers didn’t want to hear about cattle feed or vaccination. Then they realised that it protected their animals and it became normal practice. It’s the same with index insurance. They need convincing, and they’ll pay for cover if they see that it protects them,” says Samba Ba.

The technology and insurance company Pula, which launched its operations in Kenya in 2015, designs hybrid agricultural insurance products indexed on weather conditions and the presence of pasture for livestock. It also offers index insurance based on yields. Pula has now extended its coverage to Tanzania, Mozambique, Zambia, Uganda, Ethiopia and Nigeria.

What business model should be put in place?

The models are being fine-tuned and index-based agricultural insurance is now widely encouraged by agribusiness multinationals, particularly in Côte d’Ivoire, Ghana and East Africa.

OKO, after forging partnerships with Touton and Olam over the last two years, is now in talks with agribusiness giants such as Cargill, Mars, Mondelez and Barry Callebaut to bring its solutions to small farmers in the cocoa and cotton sectors. The aim is to insure 30,000 farmers in Côte d’Ivoire by the end of 2025. And the long-term potential is huge, with the prospect of insuring 600,000 growers in the cocoa sector in Côte d’Ivoire and 130,000 in the cotton sector.

“These agribusinesses already have a network of farmers and data that can be used to create customised insurance products. They have sustainability goals and programmes, and they’re looking for climate resilience solutions, to help growers and to safeguard their value chains […]. At present, a bad season leaves the farmers with little or no income and struggling to prepare the following season for them,” explains Simon Schwall, CEO of OKO.

Although multinationals have a very positive view of these index-based insurance policies covering major industrial crops (coffee, cocoa, cotton, tobacco) and encourage farmers to buy them, they are still reluctant to play a bigger role by financing or partially subsidising the products on offer. They still tend to offer the farmers a ‘harvest package’ – a payment for the season’s harvest minus inputs and the agricultural insurance premium.

In most African countries, agricultural insurance is neither subsidised (with the exception of a few countries such as Senegal, Morocco and Rwanda) nor supported by powerful agribusiness companies and the farmers themselves pay the full premium. This limits the entry of these index-based insurance policies into small markets such as Niger and Burkina Faso, where there is a clear need.