Dagmawi Assefa is the Ethiopia Country Manager for Pula Advisors, a global insurtech firm that provides agriculture insurance design and execution services. Since 2015, Pula provided agriculture insurance to 10 million farmers, across 20 countries, insuring over USD 2 billion in agriculture investment against climate risks. In Ethiopia, Pula has partnered with various entities to launch the largest crop insurance project this year, protecting smallholder farmers against drought, flood, hailstorm, pests, and diseases.
Dagmawi recently attended the launch of BimaLab Ethiopia, an insurtech accelerator program established with the support of FSD Ethiopia.
Dagmawi and his peers hope to see tech-based agricultural insurance used in the frontlines of the fight against climate change. Although agriculture insurance has been around in Ethiopia for more than a decade, there has been little progress, exposing small-scale farmers to grave dangers in the face of droughts, flooding, and locust invasions.
The Reporter’s Nardos Yoseph caught up with Dagmawi to discuss the future of insurtech in Ethiopia.
Reporter: What factors have contributed to the limited adoption of agricultural insurance programs in Ethiopia?
Dagmawi: The insurance industry shows less interest in venturing into crop insurance due to several reasons. Unlike other insurance types such as car or motor insurance that involve sporadic payouts filed at various intervals, crop insurance tends to operate differently. It often requires a single comprehensive payout, which presents a unique challenge. For example, a severe drought could devastate an entire insured area, leading to a substantial payout that occurs at the end of the season. This concentrated payout has the potential to financially strain insurance companies, even to the point of bankruptcy.
To provide context, it is important to note that the average annual profit of most Ethiopian insurance companies stands around 300 million birr. However, under the initial phase of Area Yield Index Insurance we deployed, the total sum insured amounts to a substantial 1 billion Ethiopian birr. In the event of a total loss, the insurance providers would be obligated to pay out this significant amount.
Furthermore, the operational costs associated with conventional agricultural insurance are substantial. This is where index insurance diverges from conventional insurance, especially concerning farmers, for a variety of reasons. To demonstrate this, let’s imagine a situation involving 100,000 farmers. Conducting individual yield and loss assessments by physically visiting each farmer’s plot would be exorbitantly expensive. Therefore, instead of undertaking costly and time-consuming individual assessments, we have chosen to implement an index-based solution that samples selected farmers in the insured area to offer cost-effectiveness and scalability.
Which specific index insurance products are you currently engaged with, and what are the limitations associated with these products?
There are various types of indexes, one of which is known as Vegetation Index Crop Insurance (VICI). This index utilizes satellite imagery and vegetation index to assess the condition of an insured area. If the area appears green, it indicates the absence of drought, while the absence of greenery signifies drought conditions, resulting in a payout. However, VICI only captures the greenness of the field and fails to detect other perils such as locust infestations, among other factors. This means that even if a locust invasion leads to complete crop loss, there would be no insurance payout as it goes unnoticed by the satellite. These are real instances shared with us by farmers across multiple markers.
However, Area Yield Index Insurance (AYII), is the index product we push across multiple markets based on past experiences and it adopts a distinct approach. Instead of solely focusing on the “greenness” of an insured area, Area Yield Index Insurance focuses on a field-based methodology to estimate crop yield and productivity. We will measure the actual crop yield of the season and compare it to a predetermined average production history. If the volume falls below the previous year’s harvest, the farmer becomes eligible for a payout. Area Yield Index Insurance provides a different perspective in assessing insurance coverage for farmers. As opposed to Vegetation Index Crop Insurance, Area Yield Index Crop Insurance provides a strong field presence and engagement with farmers.
Does Area Yield Index Insurance use satellite data if yes, what are the satellite data sources does it uses?
There are several satellites that offer VICI services, such as Climate Hazards Group InfraRed Precipitation with Station data (CHIRPS) and TAMSAT. Some of these satellites are open sources and accessible to anyone. However, in our approach, we primarily utilize satellite data for monitoring the season and validating the results of the deployed Area Yield Index Insurance.
It is crucial to note that satellites are not our primary source of information. Many VICI products have encountered difficulties in Africa, including Ethiopia. The limitation arises from the fact that these products do not involve on-ground yield loss assessments and rely on satellite imagery to determine whether an area is green or not. Consequently, insurers can deny payouts for crop losses caused by factors like locusts or frosty weather simply by referring to the greenness index.
To address these challenges, we have opted for the Area Yield Index. Unlike the satellite-dependent approach, our focus is not solely on satellite data. Instead, we primarily rely on yield assessments to make decisions regarding payout claims or compensation. Satellites are used to compare and validate the accuracy of the data collected through yield assessments, ensuring a more comprehensive and reliable insurance coverage approach.
How do you evaluate your activities in Ethiopia compared to the past insurance pilots?
In 2017, Pula made its entry into the Ethiopian market by working with partners on a livestock insurance product. However, the market was not yet ready to scale the program. Currently, we are working in collaboration with the Ethiopian Agricultural Transformation Institute (ATI) to develop and implement a scalable insurance program in Ethiopia. We are grateful for the support of KfW Development Bank, which has provided premium subsidies for farmers. Additionally, we are partnering with the World Food Programme (WFP) to leverage their technical expertise, and Oromia Insurance is playing a key role in underwriting the policy. Together, we aim to address the five main challenges identified in a study ATI conducted related to key learnings from past agricultural insurance programs. By combining our efforts and expertise, we are committed to delivering a sustainable and scalable insurance program for Ethiopian farmers.
One of the primary challenges was that most insurance products only covered a single peril, primarily drought, as they relied on Vegetation Index Crop Insurance. In contrast, our current Area Yield Index Insurance protects farmers against multiple perils, including drought, flood, hailstorm, pests, and diseases.
Affordability of premiums was another issue faced by farmers in previous programs. To address this, our product offers premiums that are 40 percent cheaper than the average crop insurance premiums historically. Additionally, we are working with donors to provide premium subsidies on behalf of farmers, with the aim of decreasing subsidies over time. To support this, we have raised 1.2 million USD from KfW, which was fully allocated to premium subsidies for 122,000 farmers. As we scale up, premiums will continue to be subsidized. Previous programs had smaller target groups enrolled, with the largest reaching only 20,000 farmers. In contrast, our product aims to reach a target group six times larger than those programs.
Furthermore, most insurance products were provided as standalone offerings, without integration into other agricultural initiatives. However, recognizing the potential for progress, ATI has identified the Input Voucher System (IVS) program as a means to embed and distribute agricultural insurance alongside agricultural inputs. The IVS program currently reaches approximately 8 million farmers across all key agricultural regions of the country, which aligns with our scaling plans. As farmers come to purchase fertilizers at their primary cooperatives, they gain access to insurance. This model has been successful in our Zambia market, where the Ministry of Agriculture bundles insurance with the Farmer Input Support Program (FISP). Farmers pay USD 20 to access a USD 300 input package. USD 8 out of the USD 20 contribution pays for insurance and this program reaches 1 in every 5 Zambian farmers and has measurable impact.
Lastly, previous programs heavily relied on donor funding, and when donors withdrew their support, the insurance programs ceased to exist. To ensure the scalability and long-term sustainability of our program, we recognize the need to move away from heavy reliance on donor funding. Therefore, we have been actively engaging with various Ethiopian governmental actors to raise awareness about the Africa Risk Capacity Treaty. This treaty, which the government recently signed, will significantly enhance their capacity to address extreme weather events and attract premium financing for program expansion.
By leveraging the Africa Risk Capacity Treaty, along with other strategies, we aim to support the government of Ethiopia to secure approximately 40-50 million USD in premium financing over a three-year period. This financing will support the program’s expansion and enable us to provide premium subsidies to farmers. Our goal is to make agricultural insurance a reality for all Ethiopian farmers, ensuring their protection and fostering the long-term sustainability of this program.
What does the process look like for a farmer to enroll in your insurance program?
Onboarding a farmer to the insurance program involves several key steps, including farmer registration, crop cut exercises, loss calculation, and insurance payout. The process begins with farmer registration, which takes place after farmers are sensitized about the insurance program. Our field agents collect relevant information such as names, contact details, and land size from farmers, uploading this data to our system at the Kebele level. This registration process ensures that farmers are officially enrolled in the insurance program, enabling them to access coverage and benefits. By capturing essential data about the farmers, this step establishes a solid foundation for effective insurance coverage.
The subsequent phase involves conducting crop cut exercises, which are pivotal in determining actual crop yields and evaluating potential losses. This process entails early-season visits to farmers’ plots, where vital information such as farmer details, crop specifics, expected harvest dates, perils affecting the crop, and geotagged photos of insured farms and crops are gathered. Following this, physical harvesting and measurement of crops from selected fields are conducted. These exercises play a crucial role in accurately quantifying the yield losses experienced by our insured farmers, enabling us to efficiently process compensation payouts.
To streamline logistics and optimize operational costs, we have established a network of field agents and call center agents in each Kebele, Woreda, and Zone. These agents utilize digital tools and leverage GPS technology to collect data, providing geotagged evidence of their on-site presence. During their interactions with farmers, our agents secure consent signatures, conduct field measurements, assess yield production, capture relevant images, and digitally submit the collected data in real-time. This meticulous process ensures the collection of precise and dependable information. To cultivate trust and strengthen relationships, our field agents make a minimum of three visits to farmers, facilitating meaningful interactions and fostering rapport.
After the crop cut exercises, the insurance company (Oromia Insurance), in collaboration with Pula, will evaluate the extent of loss or damage. Through this thorough evaluation process, the final compensation amount is calculated, ensuring that farmers receive fair and appropriate coverage for their losses. The final step in the insurance process is the insurance payout. Once the claims are processed and approved, eligible farmers receive insurance payouts.
Which areas does your phase one deployment focus on?
This year, we successfully launched our first phase program in six woredas and 120 kebelles located in the Amhara Regional State. During this period, we have secured agricultural investment worth 1 billion birr to support 122,000 farmers. The premiums for this coverage have been fully funded by donors, ensuring that it comes at no cost to the farmers.
This approach has allowed us to introduce insurance coverage and build interest among farmers. By offering coverage without any financial burden, we aim to showcase the benefits of insurance and encourage farmers to consider acquiring coverage with their own resources in the future. We believe that this initial exposure to insurance will demonstrate its value, paving the way for farmers to recognize the advantages and willingly invest in their own coverage.
We plan to scale to most woredas where IVS is present across Oromia, Amhara, SNNP, and Tigray in the coming few years.
What is the role of an insurtech business such as Pula, vs. conventional insurance companies?
It’s important to differentiate between insurance and insurtech businesses. We operate as an insurtech business. Our focus is on designing and delivering comprehensive insurance solutions that specifically address climate risks and contribute to the well-being of smallholder farmers. We aim to bridge the gap between the supply and demand sides of agricultural insurance, which has hindered its widespread adoption. On the demand side, we support insurance companies in enhancing their technical capacity to develop agricultural insurance products and help them diversify their risks. This includes assistance with product design, pricing, reinsurer collaboration, field operations such as farmer education, and assessing losses and determining payouts. With our innovative Pula Insurance Engine (PIE) system, insurers can now develop policies in a significantly shorter time frame, streamlining their operations. We also facilitate partnerships between reinsurers who lack local agricultural market knowledge and local insurance companies, providing a platform for collaboration.
On the supply side, we collaborate with governments, such as the ATI to encourage the piloting of agricultural insurance products. Additionally, we engage with development partners interested in funding such programs, bringing in the necessary resources to support their implementation.
How are you sensitizing farmers to increase insurance awareness?
Pula will proactively carry out awareness and sensitization campaigns with the purpose of educating farmers about the insurance product. These campaigns have a key objective of elucidating the advantages of insurance, providing comprehensive coverage details, explaining the claim process, and emphasizing the significance of effective risk management. To effectively disseminate this information, a variety of channels will be employed.
Agricultural development agents will play a pivotal role in disseminating information. They will actively engage in roadshows, workshops, and community meetings, facilitating direct interactions with farmers. These platforms allow for in-depth discussions, presentations, and interactive sessions, enabling farmers to gain a thorough understanding of the insurance program. Additionally, print media tools, such as eye-catching posters and informative flyers, will be utilized. These materials will be strategically displayed in local agricultural offices, community centers, and other frequented public spaces. By leveraging visual aids, farmers will have tangible references to grasp the intricacies of the insurance coverage and familiarize themselves with the claim process.
Furthermore, radio broadcasts will serve as an effective medium to reach a wider audience, particularly in rural areas. Collaborating with local radio stations, the organizers will air informative segments and potentially dedicate specific programs to the insurance product. This approach ensures that farmers receive pertinent information regarding the benefits, coverage details, and the importance of risk management. In addition to radio broadcasts, integrated voice recording (IVR) messages are employed. These interactive and automated voice messages will be delivered to farmers’ phones, providing them with timely and relevant updates about the insurance program and early warning signs. IVR messages can be customized to address various topics, such as the claim process or upcoming workshops, enhancing farmers’ knowledge and fostering their active participation.
What is your opinion on the Insurance industry’s progress when it comes to agricultural insurance coverage?
Creating an enabling environment where all stakeholders, including the government, have a deep understanding of the current situation is crucial. In a country where 80 percent of the population relies on agriculture, addressing the challenges posed by climate change becomes a top priority. The agricultural industry must earnestly seek solutions to provide payouts and compensate for the losses suffered by farmers. Unlike individuals with alternative sources of income, farmers depend solely on their fields for their way of life, making their livelihood especially vulnerable to multiple challenges. In Africa alone, crop losses, excluding livestock, have exceeded four billion dollars annually, primarily due to the impacts of climate change. Considering these circumstances, insurance emerges as the most effective and accessible means for climate change adaptation.
How do Ethiopian Insurance Companies engage with Insurtechs and how is their willingness to utilize them?
Although it is still in the early stages, there is a noticeable increase in the comfort level of companies providing crop insurance coverage. Currently, there are five companies offering such coverage in Ethiopia: Oromia Insurance, Nyala Insurance, Abay Insurance, Ethiopian Insurance Corporation, and Africa Insurance. We have successfully collaborated with Oromia and Nyala, and the other companies have also shown interest in partnering with us. For instance, our collaboration with Oromia Insurance has resulted in increasing their targets in the agricultural insurance portfolio. Overall, there is a positive trend indicating improvement in the industry.
There are often criticisms that the regulations behind agricultural insurance are holding the business back. What is your take on the National Bank of Ethiopia’s insurance regulations?
The National Bank serves as a regulatory authority, responsible for ensuring fair market practices and regulations. This is a fundamental role played by central banks in every country. Just as fintechs have successfully addressed challenges in the banking industry by introducing digital payment platforms alongside traditional banking services, insurtech firms have the potential to bring similar advancements to the insurance sector. When seeking permits from the central bank, we have encountered no issues thus far.
Given the market and regulatory challenges, how can the insurance industry get itself out of the low coverage reality and make insurance a normalcy for every Ethiopian citizen?
The underwhelming level of insurance uptake is not unique to Ethiopia alone; it is a common trend across Africa. For example, agricultural insurance penetration rate in the sub Saharan Africa is less than 3 percent of the population. This can be attributed primarily to affordability concerns and a lack of awareness regarding the benefits of insurance. In developed countries, individuals are more willing to pay taxes because they can directly observe the immediate advantages, such as improved infrastructure and access to universal healthcare. I believe a similar principle applies to insurance. Unless farmers can clearly perceive the benefits, their interest in purchasing insurance premiums will remain low.
What are your expectations for insurtech development within the country?
The sandbox should come first. In a sandbox, there is no regulatory body slapping the companies’ wrist with routine policy and regulation issues that get thrown around when you ask for a permit to introduce something new. The sandbox could be provided for selected insurtech companies, to test out their new products and ideas in a limited environment where the outcomes can be controlled. From there, the regulatory body can analyze the results and go on to perform its duty. We have done this in Kenya and Uganda. As the biggest Insurtech company in Africa, that’s what we take from our experiences.
What are the issues that you expect could make it difficult to hit that seven million farmer figure after three years?
There are three key aspects that we need to focus on: premium subsidies, farmers awareness, and government support. This year, we have provided premium subsidies to 122,000 farmers, amounting to a cost of USD 1.2 million. These premiums were funded by KfW, ensuring that farmers did not bear any financial burden. However, in order to expand our operations, we aim to secure finance amounting to USD 40-50 million within the next three to four years. This will be a significant goal for us to strive towards, although we have successfully achieved similar objectives in other countries with even greater financial requirements.
Secondly, there is a need for enhanced awareness and education regarding the benefits of insurance for farmers, government and development partners. By providing information sharing platforms, we can ensure that farmers and key stakeholders understand the value and advantages of insurance coverage.
Lastly, it is crucial for key government entities that have been supporting us including but not limited to the Ministry of Agriculture (MoA), Ministry of Finance, and the National Bank of Ethiopia (NBE) and donors to further recognize and support our strong commitment to expanding our reach. We want to explore opportunities for further collaboration in the holistic development of agricultural insurance in Ethiopia and look forward to continuing our partnership with the government to foster the growth and resilience of Ethiopia’s agricultural sector.