In recent months, the drive to support greater access to agricultural microinsurance has formed a major component of RESULTS’ work on microfinance. Microinsurance, which helps farmers and poor people protect themselves against shocks such as drought or other natural disasters, is a significant innovation in microfinance and one which RESULTS are keen to promote as a means for alleviating poverty.In the last couple of weeks, two pieces have appeared in mainstream media about microinsurance for farmers. First, American news network CNN ran a story on the topic of livestock insurance in Northern Kenya. The piece illustrated how local farmers were making use of innovative microinsurance products to help themselves recover following last year’s drought, during which many of them lost most of their livestock. This initiative is typical of many microinsurance schemes, which see small-scale farmers paying a percentage of the value of their herds as a premium in order to insure themselves against loss due to environmental disasters or other unforseen circumstances.
This might seem like a fairly standard insurance product to many people in developed countries, but the innovative part of the scheme is that the insurers make use of satellite imagery and other technologies to see where drought has hit hardest, and to compensate insured farmers in the affected areas. The insurance is offered by Kenyan microfinance institution Equity Bank, with the support of the International Livestock Research Institute and international donors including the UK.
In the last few days, the Guardian newspaper also published an article about microinsurance, discussing the growth of microinsurance in developing countries and how mainstream global insurers are increasingly seeing microinsurance as an idea that can both generate profits and relieve poverty. The article cited a recent report by the International Labour Organisation on the rapid growth of microinsurance, the pace of which is illustrated by the fact that the number of people served by microinsurance globally has multiplied almost sevenfold over the last five years.
The article also reported on the recent successes of one Kenyan microinsurance provider, Kilimo Salama, who won the Financial Times / International Finance Corporation 2012 Award for Technological Innovation in Sustainable Finance for their use of mobile phone banking infrastructure to make insurance payouts. Of note, however, was the acknowledgement in the article that many parts of the world, particularly in Africa, remain underserved by microinsurance providers.
This brings us to some of the difficulties experienced in expanding access to microinsurance, which were touched upon in both articles. Several experts explained the difficulties they had experienced in encouraging rural farmers to buy insurance products when the idea of insurance itself was unfamiliar to them. Also mentioned was the need for insurance schemes to reach large scale quickly in order to be financially sustainable, another factor that has inhibited the growth of microinsurance thus far.
What was clear from both articles, however, as well as from RESULTS’ previous work on this topic, is that microinsurance is a valuable tool in helping rural people escape from extreme poverty, especially when combined with other forms of microfinance and other services. As Chaliss McDonough of the World Food Programme told CNN, “Insurance by itself isn’t a magic bullet, it has to be combined with other forms of risk management including access to credit, savings and other things that help the community themselves become more resiliant and more able to withstand a shock like a drought.” And as climate change increasingly becomes a reality for the developing world’s farmers, microinsurance will have an ever greater role to play as a means of protecting poor people’s livelihoods against economic and environmental shocks.