Kenya-based insurance service provider ACRE Africa has joined Business Call to Action (BCtA) by committing to strengthen the resilience of 1 million African farmers to climate risks with its micro-insurance products by 2020.

Although small farms produce 80 percent of the food consumed in Asia and sub-Saharan Africa, smallholder farmers are extremely vulnerable. Poor weather and climate change can lead to crop losses that set farmers back for months, keeping them in a cycle of poverty. Because these farmers lack the funds to deal with the losses, they remain on the brink of destitution, even in years of good harvest.
 
Yet despite the demand for risk-mitigation services, the market for agricultural insurance targeting smallholders is virtually untapped. The challenges in this market are indeed great: most farmers have never had insurance before and do not understand it. And due to the high costs of implementation, traditional indemnity insurance requires higher premiums to be profitable than small-scale farmers can afford.
 
Agriculture and Climate Risk Enterprise (ACRE) Africa has stepped in to meet these challenges. ACRE is not an insurance company, but a service provider working with local insurers and other stakeholders along the insurance value chain. To keep costs low for farmers, ACRE’s inclusive business model utilizes established distribution channels such as financial institutions, agro-dealers and mobile operators.

In addition, ACRE’s insurance products are index-based, which means that payouts are determined by comparisons to historical, regional rainfall patterns. Whereas classic indemnity-based insurance is based on crop damage reported after harvests, requiring a long claims process, index-based insurance triggers payouts automatically if rainfall is significantly greater or less than average. Premium payments and payouts are made electronically through farmers’ mobile networks and there is no need for in-person claims inspections, which can be very costly in remote areas.

During the planting season, actual rainfall is measured using a solar-powered weather stations located close to farmers. If the rainfall is determined to be too little or too much, there a payout is sent automatically using mobile money – the amount is based on the deviation from the rainfall index.
 
In the past four years, ACRE’s coverage of smallholder farmers has grown by an average of 519 percent. The company aims to achieve its ambitious goal of reaching 1 million farmers by expanding into two new African countries (it already has subsidiaries in Rwanda and Tanzania). In tandem, it is developing new insurance products and distribution channels that will meet the needs of farmers in different geographic areas.