Thumbs up for weather-based index insurance for southern Africa’s smallholder farmers

A briefing note on the ‘Promoting Risk Pooling at Regional Level’ workshop held August 2019

JOHANNESBURG, 20 August 2019 (SACAU) — Farming and insurance industry players recently agreed to promote widespread adoption of weather-based index insurance (WBII) by smallholder farmers in southern Africa and established a Working Group (WG) to spearhead this effort. The decisions are the outcome of a multi-stakeholder consultative workshop to discuss the pooling of climate change risk at the regional level. The 5-6 August workshop was organised by the Southern African Confederation of Agricultural Unions (SACAU), with support from the Technical Centre for Agricultural and Rural Cooperation (CTA), as part of its programme to support farmers in managing climate change.

Increasing access and availability of WBII for farmers

Risk pooling across southern Africa will enhance access to and availability of the product by large numbers of farmers. Spreading risk across different geographies and associated climatic conditions are expected to significantly reduce the re-insurance costs and, ultimately the premiums paid by farmers. A regional approach also creates a larger market which makes entry more attractive for insurance providers.

Successful regional pooling requires the creation of an enabling environment, chief among them the provision of an appropriate regional policy and regulatory framework. This is in fact considered a deal-breaker – it is indeed the most important lever and pivot.

Working Group tasked to action outcomes

The WG established to action the outcomes of the workshop is comprised of farmers’ organisations, reinsurers, insurance companies, actuaries, intergovernmental bodies, international agencies and sector experts. It will advocate for an enabling cross-border policy/regulatory environment that will stimulate and facilitate risk pooling by insurance service providers to make their products more widely available and affordable to farmers. Engaging SADC will be key. The WG will also take forward the workshop’s recommendation to organise a regional conference on agricultural insurance.

SACAU will chair the WG as part of its continued curation of the process of enhancing access to WBII by farmers in the region.

Key messages

Several takeaways, key messages and lessons emerged during the workshop, among them:

Policy/Regulatory Framework

  • The Common Market for East and Southern Africa’s (COMESA)Yellow Card cross-border Vehicle Insurance provides an example of a working regional regulatory/policy framework. Practical implementation of WBII can benefit from this example.
  • The Southern African Development Community’s (SADC) Draft Disaster Risk Reduction Strategy and Action Plan 2020-2030 calls for risk financing, while the Ministers’ Council 2017 decision for approval of the Regional Preparedness and Response Strategy 2016-2030 provides for the establishment of the Disaster Fund and Sustainability Plan (for preparedness and response).
  • National regulatory bodies have a role to play, particularly in the design of the domestic regulatory arrangements, and the monitoring of product quality.
  • The majority of SADC member states do not have policies in place appropriate to WBII.

Increasing awareness and uptake

  • There is sufficient appetite for risk pooling at the regional level from key stakeholders, including farmers’ organisations, insurers and reinsurers, regulators, research institutions, multilateral organisations, ARC, and intergovernmental organisations.
  • Sensitisation on WBII needs to take place across various levels from the policy/decision-making levels to farmers to increase awareness and uptake. National farmers’ organisations and some SADC member states are interested in WBII and request technical assistance.
  • Studies show that WBII, when triggering payouts early, helps farmers save their livestock and crops instead of providing compensation when the damage has already occurred.

Technology key to uptake and impact

  • A growing digital agricultural space eases farmers’ ability to pay premiums, file a claim, receive payouts, receive farming tips and weather information as well as bundled products.
  • The use of digital tools such as smartphones and satellite imagery enables insurance providers to monitor crop health and farming practices, providing a way to minimize basis risk and reward good practices.
  • The technology enables this to be done at scale.

Integrated solutions

  • WBII should not be presented as a panacea. Although influencing coping with shocks and production decisions, few studies show impacts on productivity and profitability. To strengthen these impacts, WBII needs to be complementary to other instruments as well as to good agricultural practices.
  • Examples show that farmers are more likely to take up insurance when it is part of a bundle of products such as life insurance or input subsidies.

Overcoming insurance sector competitiveness

  • Establishment of a multi-stakeholder working group to carry forward the agenda demonstrated that dialogue helps to break some of the silos and competition among the private players by focusing on the non-competitive elements of their businesses in which they have mutual interest.

Looking ahead

Next steps towards the goal of WBII for smallholder farmers include convening a regional conference on agricultural insurance and engaging SADC on the development of a regulatory/policy framework for regional risk pooling. The multi-stakeholder nature of the engagement and interest around WBII through the workshop demonstrates the potential for a cushion for farmers who are increasingly experiencing climate shocks. Awareness-raising and information sharing by farmers’ organisations within their constituency and advocacy for policy change at the national level will be key to the success of the strategy of making WBII accessible and affordable for smallholder farmers. SACAU, in its role as convener of the WBII Working Group, will continue to push forward the agenda as one of its key priorities.

[1] Members of the WG: SACAU (Regional Farmers’ Organisation and Chair); International Finance Corporation (IFC); International Food Policy Research Institute (IFPRI); African Risk Capacity (ARC); The Common Market for East and Southern Africa (COMESA); Southern African Development Community (SADC); South Africa Insurance Association (SAIA); Swiss Re; Atchison Actuaries & Consultants; Santam Insurance; GIC Re SA Ltd; and industry experts in their personal capacities.