The coming revolution in microinsurance
The successes involve removing middlemen, using technology to manage the relationships and conditions, stripping out administrative layers and costs, and finding the parts of life that are closest to people’s hearts (and livelihoods). If you’re in insurance, then don’t just think this is something for the Third World to consider. You could start the revolution in your market if you take the time to find the levers that will bring structural change to insurance.
Read the story below, featured in the The Economist last week, for inspiration.
Security for shillings
Insuring crops with a mobile phone
Mar 11th 2010 | From The Economist print edition
ONE of the things holding back agriculture in developing countries is the unwillingness of farmers with small plots of land to invest in better seed and fertiliser. Only half of Kenyan farmers buy improved seed or spend money on other inputs. Many use poor-quality seed kept from previous harvests. That is understandable when drought or deluge can destroy their crop, but it has the effect of reducing yields. A new microinsurance scheme promises to help.
Kilimo Salama, which in Kiswahili means “safe farming”, uses a combination of mobile phones and 30 automated solar-powered weather stations to provide crop insurance. It has been set up by UAP Insurance of Kenya, Safaricom, Kenya’s biggest mobile-network operator, and the Syngenta Foundation for Sustainable Agriculture, part of a big Swiss agribusiness group. After a successful trial with 200 farmers last year, Kilimo Salama has just been expanded in the hope of attracting 5,000 farmers in western and central Kenya this year.
Farmers pay an extra 5% to insure a bag of seed, fertiliser or other things like herbicide against crop failure. MEA Fertilisers and Syngenta East Africa, two agribusinesses hoping to benefit from higher sales of their products, match the farmers’ investment to meet the full 10% cost of the insurance premium.
The clever bit, however, is the administration. Local agents register a policy with UAP by using a camera-phone to scan a bar code on each bag sold. A text message confirming the policy is then sent to the farmer’s handset. Farmers are registered at their nearest weather station, which transmits data over the mobile network. If weather conditions deteriorate, a panel of experts uses an index system to determine if crops will no longer be viable. At that point payouts are made directly to the handsets of farmers in the affected areas using Safaricom’s M-PESA mobile-money service.
With no field surveys, no paperwork and no middlemen, transaction costs are minimal. The scheme is designed to be self-financing. And clear terms should help Kilimo Salama overcome farmers’ distrust of previous insurance schemes, says James Wambugu of UAP. So should word of mouth. The trial scheme was hit by one of the worst droughts in decades, triggering compensation payments of 80% of farmers’ investments. The average amount of insured seed in the area has now risen from 2kg per farmer to 4kg.
Source: The Economist