Des services à valeur ajoutée pour étendre le potentiel de l'assurance agricole
The Centre for Insurance and Risk Management (CIRM) Advisory Services, a specialized design and research centre based in Chennai, India, is committed to stimulating greater market outreach of risk management solutions among vulnerable households. In order to develop an efficient outreach and ensure delivery of formal risk management solutions, the Centre has chosen to be a niche player and focus on microinsurance and risk management solutions under four axes: Health, Agriculture, Livestock and Catastrophe.
Agriculture, an important occupation for people in many developing countries, is affected by various production risks such as unfavourable weather conditions, diseases and pests, storage and processing risks, and catastrophe. Various risk mitigation strategies are used by the farmers to overcome the adverse effects of such risks. These strategies include informal methods like reduction of consumption expenditure, informal borrowing, distress sale of assets and migration, and formal methods like formal credit, insurance, cash transfer and disaster relief.
Most of the traditional informal risk management strategies used by farmers in developing countries, like those listed above, are ex-post in nature. However, there is a requirement for more ex-ante risk mitigation/transfer strategies which would help the farmers concentrate on important production related activities rather than on management of risk related losses.
Weather Index Insurance (WII) is a market-based ex-ante weather risk transfer mechanism which helps the farmers to increase their resilience towards such risks. It is now being used by farmers in many developing countries like
India (world’s largest WII market),
Malawi,
Ethiopia and
Kenya.
Gine, Townsend & Vickery define weather index-based insurance as
“A product whose pay-outs are linked to a publicly observable index, such as rainfall recorded on a local rain gauge”. They state that weather index insurance is characterised by transparency and cost effectiveness. However, the key issue which crops up when we speak about insurance is: client willingness for product uptake.
WII products have traditionally suffered from problems of low voluntary product take-up and renewal.
A recent study highlights this problem for India, indicating that
a majority of farmers under the Weather Based Crop Insurance Scheme (WBCIS) are covered under a compulsory program, requiring them to buy insurance because they are taking loans. Voluntary purchase of insurance by farmers is low. One of the key reasons for low penetration of insurance is low perceived value of the insurance product. The farmers may prefer to spend their money on other important activities, such as, purchasing agricultural inputs, rather than on insurance with an uncertain payout. Even if a farmer purchases the product, he/she may not want to renew the product for the following years if she/he does not receive a claim pay-out in a particular year.
To address this problem of low uptake driven by poor perceived value, one of the solutions suggested is bundling of the insurance product with a Value Added Service (VAS), which would deliver tangible benefits in order to improve client value for the product.
The annual report (2012) of the Microinsurance Innovation Facility,
International Labour Organization highlights this fact in the section “Improving Client Value” and explains it through the examples of Health Microinsurance (HMI) products covering inpatient services, bundled with the VAS of outpatient care.
In case of these VAS in HMI, the tangible benefit to the client is improved health care through outpatient services, even when he/she may not be able to utilize the inpatient services covered by the insurance product. The VASs which may be considered when speaking about agro-insurance are: linking the product with savings or bundling them with free/subsidized agriculture inputs like seeds/fertilizers etc., which farmers will value. In case of WII insurance, another important VAS which is being considered is - provision of free timely weather forecasts to client farmers. These weather forecasts would help the farming community take timely preventive measures to reduce damage to crops and make them resilient towards weather related risks, thereby generating additional client value for such bundled products.
To test this hypothesis CIRM conducted a study in 7 districts in India. In 2009,
Weather Risk Management Services Ltd. (WRMS) introduced a weather (rainfall) index insurance product for small and marginal farmers in these districts. In addition to the insurance, the farmers were also provided with free weather forecasts as a VAS. The system of delivery of these weather forecasts was also unique. They were delivered as SMSs to the mobile phones of the client farmers. An evaluation study for one of the districts was undertaken in 2011-12 to assess among other things, the incremental perceived value generated by the provision of the VAS of weather forecasts.
Significant challenges were faced during execution of this intervention and the VAS intervention failed to improve client value for the product. The survey revealed that only 61% of the client farmers had access to a mobile phone. Thus, not everyone received the weather forecasts. Additionally, most of the client farmers could not recognize and distinguish the forecast messages from other messages. The fraction of clients who felt that the SMSs were regular, relevant, trustworthy and useful was also very low. A factor which may have led to such a feedback among farmers could be the usage of English (instead of the vernacular language: Bengali) as the language for communication in most SMSs. We also found that the clients preferred other channels of weather forecasts, like TV, Radio or discussion with neighbours, rather than SMS based forecasts. The clients were also not aware that the SMS based weather forecasts were based on new local weather stations and therefore more reliable than other channels which did not have access to the localized information from these weather stations. The project partners were aware of some of these challenges but were unable to tinker the product due to pre-existing project plan governed by contractual arrangements.
To sum up, we strongly believe that agriculture insurance programmes like WII are highly beneficial ex-ante risk transfer mechanisms for poor and vulnerable farmers, but they suffer from a problem of low voluntary uptake. Bundling insurance products with VASs is one of the possible ways to improve client value for the product and increase take-up. Delivering weather forecasts as a VAS has tremendous potential to improve client value for the WII products. However, we were unable to validate this hypothesis in the above experiment due to various operational challenges. Learning from this experience we would recommend budgeting extra time and resources for product tinkering to meet localised client needs. Furthermore, the experiments show that it is desirable to adapt the project objectives based on changing goals of the partners. Value Added Services extend the potential of insurance products that should be included in a broader strategy of risk management, for the benefit of family farms.