The types of insurance schemes readily available to help farmers in the US and Europe manage crop losses aren’t available, or affordable, to most of the world’s farmers. With climate change threatening agriculture and the 2.5 billion livelihoods that depend on it, there is a growing need for insurance products that can affordably reach remote farmers at risk from increasingly unpredictable rains, droughts and pests.
Insurance tech venture Pula is trying to fill that gap. The Nairobi-based startup serves as a bridge between smallholder farmers and insurance companies who otherwise wouldn’t develop such small-scale insurance products.
Pula has so far managed to sign up more than 4.7 million farmers in 17 countries on two continents. At least 154,000 farmers have made claims on the schemes to protect their income from crop failures. Pula says $6.9 million has been paid out to smallholder farmers this year alone.
Earlier this year, Pula secured $6 million in investment capital from impact investor TLcom Capital and Women’s World Banking. AFN spoke to co-founder and CEO Thomas Njeru (TN) about Pula’s vision for growth and how insurance tech can be used to boost farmers’ resilience and incomes against the threat of climate change.
AFN: Is climate change already affecting Africa’s farmers?
TN: We have seen from our climate data analytics the impact of climate change on temperatures and the volatility of rainfall patterns. The quantum of changes differs across different regions.
Smallholder farmers [have] had no access to agriculture insurance that works. In the absence of adequate risk mitigation mechanisms, farmers are caught up in a vicious cycle of poverty and are left to the mercy of disasters. The long-term impact is suboptimal investment in their farms, resulting in low productivity.
We help farmers deal with climate change by transferring risks to someone who has the diversification and financial muscle to absorb the volatility. We [also] provide digital-based extension services to assist farmers with information that will help them quickly adapt to climate change.
AFN: How did the idea for smallholder farmer insurance come about?
TN: [Smallholder farmers] contribute to the majority of Africa’s food production. Traditional insurance companies do not provide coverage to the smallholder farmers due to their peculiarities including size, heterogeneity in farming practices, and their perceptions of insurance. A gap exists to protect farmers against the vagaries of the climate, and Pula is seeking to close that gap.
Our model of bundling insurance with input and credit services from aggregators, or subsidies from governments, has enabled insurance affordability and large reach. We are leveraging technology to make the unit economics of serving smallholder farmers viable.
The average annual insurance premium that a farmer can afford is about $5 to $10. This includes the cost of product development, pricing, underwriting, claim adjustment and of course the claim costs. We use artificial intelligence, mobile-based registration systems—both USSD and mobile app—remote sensing, and end-to-end automation tools to make the numbers work.
AFN: Why is access to insurance so low for Africa’s farmers?
TN: There is a long list of reasons for the low penetration of agriculture insurance in Africa, but the problem is largely two-fold: The first is on the supply side. Insurance companies lack the technical capacity to design and execute solutions targeted at smallholder farmers who account for over 70% of the agricultural production on the continent. It is not feasible for insurers to invest in these capabilities due to limitations of scale. Also, businesses are regulated in-country. For instance, a Kenyan insurer cannot underwrite business in Uganda unless they get a license and capitalize there.
The second is on the demand side. Farmers don’t wake up wanting to purchase insurance—they need it but don’t want it [because of] typical optimism bias where we hope for the best but don’t prepare for the worst. It’s considered bad luck to bring up a conversation about drought to a farmer and the need for insurance when they are planting.
Pula’s business model effectively solves both the supply side and demand challenges. On the supply side, we’ve built infrastructure that enables insurance companies across the continent to design, distribute and execute insurance solutions for smallholder farmers. On the demand side, we embed insurance into [distribution of] inputs, seeds, fertilizer, credit and government subsidy programs.
AFN: Given how remote Africa’s smallholder farmers are, how does Pula reach potential customers in a cost-effective way?
TN: Pula works with governments and associations to identify and insure farmers in the most remote places. Our model of bundling insurance with inputs and credits not only secures their finances, it also gives them a soft-landing in case of losses.
Through risk layering, we have also helped various governments structure their [own] financing model for smallholder farmers.
As part of the insurance registration process, we collect farmer-specific data that we use to provide targeted and customized agronomy advice to farmers to adopt better farming methods and consequently increase their yields. This is powered by mobile technology and data science. Traditional extension services in Africa have failed to efficiently and effectively disseminate information to smallholder farmers, and it is high time we leverage technology to improve yields for farmers.
AFN: What is Pula’s current reach and what impacts have you noticed so far?
TN: Pula has insured over 4.7 million farmers in 17 countries in Africa and Asia. [We are] working with over 40 distribution partners, 50 insurers and eight reinsurers. Our experience and data show that giving smallholder farmers access to insurance [coupled with] agronomy advice increases their investment in their farms by up to 16% and enables yield increases of up to 30%. This creates more climate resilient and profitable livelihoods, helping to lift farmers and their families out of poverty.
Pula has raised $10 million from fintechs and impact venture capitalists to support both our product and regional expansion. On the regional expansion front, we recently set up in Togo, Cuba, Pakistan, Indonesia and Philippines—all in one year.
AFN: What excites you about agtech sector in Africa, and what innovations have you seen from other entrepreneurs that you think are interesting and necessary?
TN: Credit for smallholder farmers remains a big gap towards improving productivity. We have numerous innovations around digital-based microcredit targeted at smallholder farmers. This is important and exciting because we see it as a scalable model. It will change the face of agriculture on the continent. We shall be there to partner with these providers as they seek to scale.