Microinsurance for the Developing World

Neil Palmer (CIAT)
A farmer in Kenya's Mount Kenya region. (Photo taken for the Two Degrees Up project, to look at the impact of climate change on agriculture.)

When a natural disaster strikes in the West, farmers can turn to their insurance companies for aid. In the developing world, where the dangers are often more acute, and risk of failure grim, there is no such safety net. Despite the explosion of interest by Western firms in microfinance schemes, the idea of insuring the poor has so far proved unworkable. Insurance companies have viewed the costs of verifying claims as outstripping the small gains to be made from insuring a bag or two of rice—that is, until now. In 2008 the Syngenta Foundation for Sustainable Agriculture began a pilot insurance program in Kenya that has since grown to include 11,000 farmers.

The program, called Kilimo Salama, or “safe farming,” relies on technological innovation to keep the overhead costs of the insurance industry down. When a farmer purchases grain or other items, like fertilizer, the seller takes mobile phone pictures of the goods, thus verifying the amount. Syngenta then uses the data from national weather stations across the country to gauge the microclimates of different regions. Each farmer who joins the program falls within the catchment area of one of the weather stations. In the event of drought, he is automatically credited on his mobile phone with the sum of the goods he lost. Kenya is already a pioneer in the use of pay-as-you-go phone contracts as a form of mobile banking for the poor. Kilimo Salama’s success means that it is being extended to include a wider range of crops, and other African countries.

The idea of microinsurance is not without its problems. Corruption, which has deterred Western companies in the past, including the insurance industry, can still occur at the verification stage. Another hurdle has been selling farmers on the idea of insurance. Forty percent of the program’s budget goes to outreach work and paying trainers to educate farmers and man telephone hotlines. Syngenta still expects the program to be commercially viable in three years. Currently, Syngenta’s agribusiness partners pay half of the premium to make it affordable.