This is the mobile phone component of an Ag Risk Management idea. Without insurance, poor small holder farmers must take a low-risk, low return strategy to their selection of crops and related inputs. With insurance, these same farmers are able to take risks – making investments up front in the right seeds and fertilizer to increase their crop yields, hence earning dramatically more to pay for food and school and medical expenses. How it Works: Unpredictable and increasingly extreme weather (i.e., patterns of rainfall and temperature) can wipe out a season’s crops for small scale farmers throughout Sub-Saharan Africa (and beyond). Weather (sometimes called crop) insurance for such small farmers has been operationally prohibitive given their small size and high transaction costs for processing claims. A new type of index-based micro insurance has now been piloted successfully in Ethiopia, Malawi and elsewhere which has shown that using ICT (information and communications technology) to keep processing costs very low – combined with some sort of indexing using digitized weather stations (which can be co-located with cell phone towers); satellite weather maps combined with the GPS locations of farmers to measure their proximity to the weather stations (indexing may be linked to other data as well); and (here is the biggest S&T input) precise data to determine the effect on a specific crop by different levels of rainfall at different times during the crop cycle. Farmers sign up for the insurance and pay their premium. Actual rainfall is monitored and a crop cycle model (that’s the S&T) determines which farmers have failed crops. Based on this information insurance payouts are “pushed” out to the effected farmers; no claims need to be submitted or processed. (This can also be augmented by using mobile money to collect premiums and deliver payouts, reducing transaction costs and risks even further, but that is icing on the cake.) This type of insurance has been piloted in many countries but has not scaled anywhere for a variety of reasons. S&T Requirement: One big reason such an insurance product has not scaled up is that insurance companies do not yet have the detailed indexed data to provide such insurance in the poor countries where this micro insurance could be so beneficial. Further, it can be applied to livestock if country specific indices of livestock morbidity rates linked to satellite images of vegetative cover can be harnessed. We also need more research and analysis on the business models that will work best and the tiers of risks and investors (e.g., via re-insurance models) to help this service scale. Finally, S&T can be used to hone ways to teach farmers how and when to use insurance. Some promising gaming models have already been developed but not widely applied.
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