The World Bank Group, through the Global Index Insurance Facility (GIIF), helps smallholder farmers and microentrepreneurs gain better access to finance, manage financial losses, and protect their livelihoods against more frequent and more severe weather events. With an objective to develop effective and sustainable markets for agriculture insurance, GIIF, since 2009, has facilitated more than 4.6 million contracts, covering over 23 million beneficiaries and $730 million in agricultural investments insured in more than 30 developing countries.
However, the potential of agriculture and index-based insurance is greatly restricted by many challenges faced throughout the product lifecycle - from product design to client delivery to claim processing:
- Product design: to design and price reliable insurance products, historic time series data of production, yield, production loss, meteorological, etc. is crucial. However, in many developing countries data availability, data quality, and challenges related to data affect the quality of product design and the cost of development of the product.
- Sales and distribution: at this stage, the main challenge is the low level of financial education and awareness on insurance among smallholder farmers. Insurance products remain largely “intangible/invisible” to agriculture producers, as they provide a financial promise for the future and the benefit is only seen once an adverse event occurs. The distribution challenge is related to reaching the right targeted clients due to geography and inefficiency of distribution agencies.
- Premium collection: this stage faces the challenges of purchasing power of smallholder but also the systems and mechanisms in place to facilitate the payment.
- Servicing/distribution: in the traditional business model, insurance companies relies on bricks-and-mortar branches, broker networks, and financial institutions to collect premiums and claim pay-outs. This business model limits insurance companies’ ability to reach agricultural stakeholders. Indeed, financial institutions as well insurance companies/brokers have limited branches in rural areas, contributing to a difficult, high cost environment to serve the agricultural clientele. Despite almost two decades of efforts, microinsurance reaches just under 300 million people across the developing world. This is only around 10% of the potential market for insurance.
- Claim processing: the challenge at this stage is the systems and mechanisms in place to facilitate pay-outs to the clients, given the level of account ownerships among smallholders. Insuretech, at the intersection of insurance and technology, holds the potential to overcome those challenges and transform the insurance landscape. Integrating Insuretech innovations with agriculture insurance promises to enhance product design, improve sales and distribution, facilitate premium collection, and optimize servicing and claims processing.