Bundling index insurance with other financial and non-financial services can help scale agricultural insurance. It provides incentives for farmers to purchase insurance and opportunities for other stakeholders. Index insurance has been successfully bundled with credit in places like Mali, increasing farmer investment and incomes. Insurers like ACRE bundle products with farmer groups, banks, and input suppliers. Appropriate services to bundle with include credit, seeds/fertilizers, and complementary insurance covers. Key considerations for effective bundling include pricing affordability, evaluating value for all stakeholders, and delivering bundled products that protect farmer incomes.

1. Bundling agriculture index insurance
with financial and non financial
services

2. Interfacing with the webinar system
2
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3. How can index insurance be bundled
with other financial and non financial
services
3
Presenter:
Michael R. Carter
Professor and Director
BASIS Research Program
University of California, Davis
Presenter:
François-Xavier Albouy
Vice President
PlaNet Guarantee
Presenter:
David Muigai
Actuarial Officer
ACRE
Presenter:
Shadreck Mapfumo
Senior Financial Specialist
World Bank Group
Moderator:
Pranav Prashad
Impact Insurance Facility
3

4. YES
NO
Poll: Do you as practitioners bundle
insurance with other services
4

5. Global perspectives
‒ With credit
‒ With complementary services
‒ With farm inputs
‒ Incentive for purchase
‒ Loyalty benefit
‒ Value added services to the insured
What is “bundling”
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6. Bundling Insurance with Credit to
Crowd-in Farmer Investment
6
Michael Carter
I4 Index Insurance Innovation Initiative
University of California, Davis, USA

7. Logic of bundling
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By itself, agricultural insurance offers reduction in income
variability in return for some reduction in average income
(unless insurance is subsidized)
While risk averse farmers will in principal make this trade-
off, it is a pernicious one for low income households
Problem made worse by insurance index where there is
some probability that the contract will fail
One solution to this trade-off is to link insurance with the
expansion of economic opportunity
See in a moment that an interlinked credit-insurance
contract in Mali led to a reduction in income variability
AND a 25% increase in area planted & investment in
cotton

8. How & Where Bundling Can Work
8
A “bundled” contract with credit can be treated as one in
which the creditor has first claim on insurance pay-outs to
cover farmers’ debt obligations
Such bundling makes most sense in environments where
loans are under-collateralized
When loans are under-collateralized, lender bears
drought and other risk
Often the case in value chain finance where a standing
crop partially collateralizes the loan

9. How & Where bundling Can Work
9
In low collateral environments, standalone insurance contracts will have
minimal impact on investment profitable activities
Requiring standalone insurance will actually reduce investment!
Interlinked insurance interlinked crowd in investment
Importantly, this assumes that the loan market is competitive and that the
lender reduces interest rates on interlinked loans
Note also that even interlinked insurance will have zero impacts in certain
risk environments

10. Positive Impact!
10
For the 2011-12 crop year, a dual trigger area yield interlinked
contract (with very low failure probability) was offered to
Village-based cotton cooperatives
Farmers enjoyed ready access to credit via monopsonistic
value chain (CMDT)
They also faced substantial risk, which they traditionally
managed by restricting area planted in cotton
Results of a randomized controlled trial revealed that insured
farmers expanded borrowing, input purchase and expected
output and income by about one third!

11. Impact Results (LATE Estimates) from
Mali
11
Area Planted
(hectares)
Cotton
Production
(kg)
Borrowing
(‘000 CFA)
Fertilizer
Expenditure
(‘000 CFA)
Area in
Other
Crops
(hectare)
Impact on
Insured
1.68* 755 156 86* -0.5
Mean of
Control
Group
2.5 2534 294 123 4.1
* statistically significant

12. It Can Work, but …
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These ex-ante behavioural impacts require that farmers
know they are insured and will receive some protection
A danger of mandatory insurance is that these conditions
will not be met
Same problem with pure portfolio insurance for the
lender
Need to think hard about our development objectives as
we design contacts
A similar, but earlier contract with small-scale cotton
farmers in Peru met with more modest uptake

13. NAIS and WBCIS mandatory schemes bundled
with agriculture loans from banks for listed crops
Helped in scaling index insurance to over 25
million farmers
Private sector initiative “mainstreamed” with
govt. support
Other credit linked examples: India
growth story
13

14. Bundling Index Insurance With Other
Financial and Non-Financial Services
14
David Muigai
Actuarial Officer
ACRE

15. ACRE Africa in the Insurance Value Chain
15
Acre Africa is a pioneer in
developing index insurance
for agriculture in East Africa,
with over 5 years of
experience in providing
innovative index insurance
solutions to farmer
aggregators in three
countries.

16. How it works
16
Financial Services
Banks
MFIs
SACCOs
Non Financial Services
Farmer Groups
Seed Companies
Agrochemical companies
Social enterprises
ROLE OF ACRE:
Link in the entire value chain
Product design & implementation
Leverage on existing farmers
Leverage on existing distribution
Technological implementation
ROLE OF AGGREGATORS:
Advancing insurance linked credit
Advancing insurance linked inputs
Insured on behalf of farmers
Farmer education

17. How it works
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CHALLENGES
Cost to farmer Financial literacy
Admin. costs Basis risk
Weather data Retention
Triggers and design
OPPORTUNITIES
New geographies
Alternative indices
Product bundling
IMPACT
Lower Premiums
Increased loan uptake
Quality inputs
Basis Risk Management

18. Mobile Phone Aide
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Get farm location from SMS
and monitor satellite imagery
for that location
Insurance in
the bag
Germination fails after 21
days without rain
Compensation
sent to Farmer via
M-Pesa
Farmer can replant and
harvest the same season
SMS unique
code to
short code
Opens bag on
planting, finds
card inside
→ → →
↓
←←

19. Growth stats 2009-2014
19
2014
11,650,523
233,795
2014: Scaled the
mobile-enabled
replanting
guarantee

20. Mandatory
Voluntary
Poll: Bundling can be an effective
mechanism for scaling up when it is
20

21. PlaNet Guarantee: Bundled products
21
François-Xavier Albouy
Vice President
PlaNet Guarantee

22. Bundled products – PlaNet Guarantee
22
In OECD countries,
insurance bundled
products are designed
to:
‒ Minimize
distribution costs
‒ Increase customer
retention
‒ Optimize distribution
channels
In emerging countries
bundled products have
different aims:
‒ Protect income of
vulnerable
populations
‒ Optimize contact
with clients

23. Bundled products – PlaNet Guarantee
23
Income of rural
populations are
sensitive to:
‒ Climate conditions:
• Yield
• Crop prices
‒ Exchange Rates
‒ Health situation of
the households and
in the community
Bundled Index insurance
may cope with all these
issues:
Index crop insurance is
already protecting rural
housholds against
climatic related events
Derivative products
should in the future
protect rural population
against global climatic
events
Purchasing power in
healthcare is sensitive
to income

24. Global climate index
24
Price of production may
vary rapidly due to
climate conditions in
other regions:
‒ Price of rice
‒ Price of maize
‒ Price of coffee
Often the medium term
trend is positive (coffee,
cocoa…) even if yearly
volatility is high
A matrix of covariance
might provide a
modelization of
variations in price
Financial products
should be designed to
protect households
Already future prices
and derivative products
effectively protect the
agro-industry operators

25. High volatility in prices
25
*source: de Nicola, Francesca et al. « Co-Movement of Major Commodity Price Returns » Finance and Private Sector
Development Unit, The World Bank

26. Health and climate
26
In practice, healthcare expenses are linked
with income in crop
Protecting health insurance schemes with
basic index products might be feasible

27. Orange Money Epargne or ‘’SINI TÔNO’’ bundles a saving
contract with a death and disability insurance + health
insurance focused on severe pregnancy risks.
SINI TÔNO: “Profits tomorrow!”
27

28. Healthcare insurance designed to vulnerable population,
especially in rural areas:
‒ A network of healthcare providers from the GP’s to
hospitalization has been contracted.
‒ Selling period is linked with the harvest period i.e. fits with
the new rhythm of underwriting cycle of crop index
insurance by PG in Western Africa…
‒ 80% of what people are effectively paying (capped at XOF
1,000,000)
‒ outpatients, medical imaging, surgery, hospitalisations,
drugs, ambulance costs…
Premium: XOF 60,000/ y (2 adults+ 2 children)
Healthcare in rural areas:
28

29. Planet Guarantee creates products for aggregators to increase
their profitability
Banks , Investors and MFIs
‒ To lend more to customers, the entire portfolio being covered
against climatic risks
‒ To reduce credit recovery costs and default risks
CMS (Sénégal) , BIM, BOA (maize, sesame Mali), Ecobank (Burkina
for cotton), Oikocredit (Ivory Coast), Fondation Grameen Credit
Agricole (Mali)
Inputs suppliers and agri-business:
‒ Customers fidelization
OLAM (cattle, health and crop insurance in Ivory Coast)
Aggregator approach
29

30. SANASA insurance Co. in Sri Lanka offers Weather Based
index insurance bundles Personal accident and
hospitalisation covers
Helped customers’ understanding of insurance
India & Zambia: Weather forecasts and agriculture
advisory services provided to insured farmers
Bundling multiple insurance covers and
other services
30

31. Bundling Index Insurance With Other
Services
31
Shadreck Mapfumo
Senior Financial Specialist
World Bank Group

32. Successful Examples of Bundling
Insurance With other services
32
Third Party Car Insurance / Annual Road Licence
Property Insurance / Mortgage loan
Credit Life / SME loans
Funeral/Life Insurance / Airtime

33. Key Drivers Of Successful Bundling For
Index Insurance
33
Target Market Key Drivers
Agribusinesses Increased customer loyalty/preventing side-selling
End users Increased net income/wealth
Financial Institution Improved Risk Metrics

34. Practical Considerations
34
Premium level –Index Insurance premiums much higher than
traditional
Cost of bundling
Source of premium financing
Pitching to the client : Health balance between qualitative and
quantitative content.
₋ Client Risk Tolerance = Maximum NPL =4%
₋ 10 year Historical NPL data for 8 geographical areas
₋ 10 year historical payouts for 8 geographical areas.

35. Sample Risk Metrics for client
engagement
35

36. With loans and credit
With seeds and fertilizers
Providing complementary value added services
With other insurance covers
Poll: Which is the most appropriate
service with which agriculture insurance
can be bundled
36

37. Pricing is key, especially when insurance bundled with
already expensive agricultural credit
Evaluating value proposition for each key stakeholder in
the bundling process is critical for a long term sustainable
bundling process
Affordability is a critical element when designing bundled
products
Delivering index insurance as a bundled product to
farmers is one of the key strategies to scale up
Concluding thoughts
37

38. Bundling agriculture index insurance
with financial and non financial services
38
Presenter:
Michael R. Carter
Professor and Director BASIS Research
Program
University of California
Presenter:
François-Xavier Albouy
Vice President
PlaNet Guarantee
Presenter:
David Muigai
Actuarial Officer
ACRE
Presenter:
Shadreck Mapfumo
Senior Financial Specialist
World Bank Group
Moderator:
Pranav Prashad
Impact Insurance Facility
38