Farming is the biggest contributor to many African nations’ economic output, including Nigeria.
A form of agricultural insurance called “area yield index insurance” could provide farmers with the confidence they need to invest in their farms by protecting them from many types of hazards.
Area yield index insurance works by determining the average agricultural yield in a defined area.
In below-average harvesting seasons, it reimburses farmers in that area for the value insured (for example, the value of the seeds and fertilizers they used that year).
For providers, the advantage of this type of insurance is that sampling yields for the area removes the need to visit each individual farm. Even so, determining average yields remains costly. Year after year, it requires providers to pay trained auditors to conduct detailed yield measurements in remote areas.
In Nigeria, Pula will be working with a consortium of insurance and agribusiness companies to bring an area yield index insurance product to market that reimburses farmers in-kind for fertilizers they purchased ahead of below-average harvests.
The partnership’s goal will be to lower the cost of offering this product by enabling providers to use satellite imagery instead of auditors to determine average yields.
It is hoped that the high-quality yield and satellite data available today will enable local insurers and Pula Advisors to create an innovative yield predictive model that decreases the cost of area yield index insurance.
At the end of the day, this product will be made more accessible to smallholder families, allowing them to invest with more confidence and increase their yields.
There is estimated 18 million smallholder farmers in Nigeria today.
Pula has found that area yield insurance is easy for farmers to understand and accept, as it covers them from a wide range of catastrophes that threaten their harvests and is measured through tangible farm visits.
That said, making sure those visits are done most cost effectively, at speed and without missing out on areas where farms suffered is a key challenge, particularly in a country as vast as Nigeria.
Across Africa, small-scale farmers who collectively are crucial to feeding the continent are struggling to cope with the impact of climate change on weather patterns and the land on which they depend.
Those challenges, combined with the spread of mobile phone technology, have created the conditions for Pula’s rapid growth.
The company has signed up 4.6 million farmers in Nigeria, Zambia, Ethiopia and other African countries.
CEO Thomas Njeru co-founded the company in 2015 with Dutch entrepreneur Rose Goslinga after the pair spotted a gap in the insurance market.
Because of climate change, farmers are having to contend with unpredictable rain patterns, frequent droughts and even the emergence of new pests and diseases, Njeru said.
“The risk increases because of climate change, increasing the need for farmers to have insurance,” he said.
To sustain its business while keeping premiums low, Pula uses a mobile phone application to register users, machine learning algorithms to cluster farmers whose land have similar characteristics and digital tools to assess claims in the field, Njeru said.
“If you use the traditional model of proposal forms and policy documents, the numbers won’t add up,” he said. “To be able to deliver such a low-cost product at that price you have to use technology and most companies don’t have that capacity.”
Pula also aggregates demand for farm insurance, serving banks, traditional re-insurers, governments, development agencies, and even fellow tech firms like Safaricom, which has its own platform for farmers.
For that service, Pula does the actuarial risk analysis, insurance placements and negotiations along with physical assessments in the field, he said.
In January, Pula raised $6 million in a funding round led by London-based TLcom Capital, to invest in new markets, strengthen existing products and design new ones. Njeru said the company’s next targets are Brazil and India.