Since its inception in 2010, GIIF has been focusing on using innovation to protect excluded or underserved population in the rural areas particularly smallholder farmers through developing a sustainable insurance sector in the nascent market. The primary risk solutions are centered on index-based agriculture insurance to safeguard livelihoods of smallholder households against weather volatilities and climate shocks. GIIF Program has been focusing on two entry barriers: regulatory constraints and lack of institutional capacity of local/regional (re)insurance companies. GIIF’s implementing insurers reach smallholder farmers through aggregators such as MFIs, agricultural input suppliers and other stakeholders in the agricultural value chains whom incorporate insurance in their goods/services offered.

While regular engagement with implementing partners through trainings, stakeholder meetings and supervision visits helps gauge the progress of the Program, no systematic evaluation has been done to understand adoption, perception and knowledge of insurance of smallholder farmers. In August 2020, GIIF initiated a comprehensive study with Wageningen University & Research that will bring the experiences and perspectives of all stakeholders on the agriculture insurance value chain in three African countries: Kenya, Senegal and Zambia. This study will include household surveys of GIIF-sponsored insurance schemes and interviews with relevant services providers, which can guide the expansion/scale up phase of GIIF operation in these countries.

The Wageningen Economic Research team headed by Dr. Marcel Van Asseldonk with more than 20 years of experience in agriculture insurance will be conducting the study. Dr. Asseldonk who worked on many impact evaluations of insurance schemes including field research projects in Kenya and Zambia, sits with GIIF to share insight on his research and the plan for the project.

GIIF: Could you please describe your work at Wageningen University & Research?

Dr. Van Asseldonk: Wageningen University & Research is specialized in the domain of agriculture, food, environment and health. As an economist I work at Wageningen Economic Research, where we conduct applied social and economic studies. I am coordinating research in the field of evaluating agricultural insurances aimed at farmers and agribusinesses in developing countries. More in general, we offer organizations, companies and policymakers an insight into the impact of their interventions. Often, we look at impact on productivity, incomes, well-being and the environment. For example, we carry out evaluations of the effectiveness of financial services and of training provided to farmers. We look at the links between different financial services, such as saving, credit, mobile money and insurance. And we relate that to insights about households, businesses, value chains and sustainable landscapes. During the last two decades, we have conducted a growing number of robust impact assessments, both at the level of end-beneficiaries (farmers and other value chain partners) and at the level of SMEs and corporate businesses. We search for answers to the question: what works, for whom and under what conditions?

GIIF: What are the challenges and opportunities of agriculture insurance to ensure right livelihoods and rural development in developing countries?

Dr. Van Asseldonk: Insurance can be an important element to poverty alleviation. Giving smallholders access to insurance enables them namely to invest in improved agricultural inputs to enhance farm production and ultimately household income.  It also helps them to cope with the risk of farming, in often adverse circumstances. Yet, agricultural insurance is either unavailable or prohibitively expensive in many developing countries.

Key to success is to streamline claim handling and marketing efforts in order to minimize transaction costs (i.e., low-cost and at large-scale). To overcome this hurdle, index insurance has been promoted for several decades as an innovative approach to insurance provision. By now, emerging index-based insurance has proven to enable efficient claim handling since it does not require the traditional services of insurance claims assessors. It has also allowed for the claims settlement process to be quicker and more objective, although inherent basis risk and communicating this to farmers in a comprehensible way remains a concern. However, direct sales to individual smallholders is a challenging task without an easily scalable solution. Farmers in developing countries are often not familiar with the concept of insurance, and misunderstandings easily emerge.

Large-scale insurance adoption hinges on the cooperation with participating aggregators who have an effective outreach to the market. Such organizations include the financial service industry (e.g., insurers, brokers, banks and micro-finance institutions), input providers (e.g., seeds and fertilizers), traders, processing industry, as well as farmer-based organizations. These aggregators are crucial as intermediaries in order to channel services to a vast number of farmers that are otherwise too difficult to reach individually. They allow scale in outreach and transactions (since they have well-ramified distribution network in the countryside). They also provide much needed trust between all parties involved, from the index service provider to the insurance companies and farmers. An additional major challenge, for these aggregators and for the agricultural sector in general, is to increase awareness and understanding among farmers about their risk exposure and how they could cope with these risks in an alternative way.

GIIF: Could you highlight the roles academic institutions play in supporting the development agenda?

Dr. Van Asseldonk: Academics can develop evidence and knowledge about what works effectively, and also why promising solutions can sometimes deliver disappointing or unexpected results. It is clear that insurance can help to mitigate yield risks (i.e., income smoothening). We can see that from insurance pay-outs in adverse times, as reported by markets players.

In addition, insurance bears the promise of crowding in the use of modern inputs (enabling income enhancement). But these claims are not always backed-up by publicly available empirical findings. Moreover, because adoption is lagging behind expectations, the potential impact at large is hampered. Closely related is the lack of empirical evidence and mixed results showing whether bundling insurance with credit and inputs can make insurance more relevant, and whether bundling renders greater welfare gains to the farmer. Finding options that work best for farmers is therefore pertinent.

Endorsed stand-alone and bundled practices should be evidence-based. Academic institutions can shed light on the impact by means of independent research. Not only will these findings support private stakeholders in the value chain but also support the implementation of public policy environment conducive to upscaling. Nevertheless, it should be noted that academic research in the field of insurance seldom goes beyond one-off field experiments under highly controlled conditions. The challenge is to partner with private and public stakeholders to research existing insurance schemes to derive key constraints in upscaling. By doing so opportunities of co-creation of innovative finance with smallholders and other stakeholders will facilitate upscaling more likely.

GIIF: Could you please share with us any insights on the new project with GIIF and how the study may help guide the Program in its next steps?

Dr. Van Asseldonk: Over the years GIIF has facilitated close to 8 million contracts, with $1.5 million in sums insured, covering approximately 40 million people, primarily in Sub-Saharan Africa, Asia, and Latin America and the Caribbean. Although times-series are available at portfolio level, we need to know more about the dynamics behind those figures: do farmers renew the insurance coverage or do they drop out after some time? who are the early adopters, and who are the laggards? To answer such questions, we need primary data at household level for a more detailed analysis on the determinants of adoption and smallholder satisfaction (e.g., trust in insurance product, perceived complexity, affordability, terms and conditions, and claim settlement). In the coming year Wageningen Economic Research will analyze typical bundled insurance products in three case countries (e.g.,, Kenya, Senegal and Zambia). We will also look more in-depth at the links between delivery channels applied and potential of upscaling, and at the enabling policies of governments.

In Kenya, GIIF facilitated a Replanting Guarantee where each seed purchase from participating dealers is linked with an insurance coverage.  Eligible claims are payed-out into a farmer’s mobile wallet or as an automatic discount on the next seed or fertilizer purchase. In Senegal GIIF facilitates, through the operating agricultural insurance company, not only stand-alone insurance but also credit-linked and input-linked insurance. The Zambian Government has implemented a Farmer Input Support Program, as part of its agricultural transformation agenda, including more recently an index-based insurance e-voucher to enable rapid uptake. These typical cases have in common that upscaling is envisaged by delivering insurance by those stakeholders with a large outreach to famers.

Taking into consideration different insurance development stages and market environments of the countries under study, the results will reveal individual characteristics as well as provide guidance on country-specific next steps.  We will interview key stakeholders in these delivery channels. Furthermore, we collect and analyze gender disaggregated household data of early and late adopters, drop-outs, and non-adopters. Our findings will be valuable to reflect past achievements more holistically by adding industry’s and farmers’ perspectives. The results of the study may also be interesting for neighboring countries where insurance is sometimes less advanced.