Côte d’Ivoire expands insurance coverage for small-scale farmers facing climate change

Agriculture accounts for almost one-fourth of GDP and more than 50% of the nation’s export revenue. The country is the world’s largest producer of cocoa beans and the biggest exporter of cashew nuts. It also grows a wide range of cash crops, such as rubber, palm, cotton and coffee as well as food crops.

However, like many of their African counterparts, Ivorian farmers are facing growing risks linked to climate change resulting in significant production volatility. The vast majority of them, especially small-scale growers, are not covered by any insurance policy coverage. In 2017 the insurance penetration rate in Côte d’Ivoire, all sectors and regions combined, was estimated at only 1.7% of GDP, and it is believed that the rate is even lower within rural communities.

Feasibility Study

To help Ivorian farmers better comprehend climate risks and protect them against the effects of climate change on certain crops, the World Bank in mid-2017 conducted a feasibility study for the potential development of index-based agricultural insurance in Côte d’Ivoire.

Index insurance is an innovative form of insurance that calculates benefits using a predetermined index for losses – assets or working capital – resulting from natural disasters. A statistical index is developed prior to the start of the insurance period to then assess divergence from benchmarked levels that can take into account parameters such as average annual rainfall, temperature, earthquake magnitude, wind speed, crop yield and livestock mortality rates.

The reflection was undertaken by the Global Index Insurance Facility (GIIF), a programme of the World Bank funded by the EU, Germany, Japan and the Netherlands. In the outcome of the study presented early 2018 in Abidjan, the GIIF recommended the launch of a pilot phase for index insurance for four specific crops – cocoa, cotton, rice and corn – before potentially expanding it to some other crops, depending on the outcome of the scheme and the interest of sector players. The pilot phase was expected to start in June 2018 with three insurance companies.

Climate Risks

Although Côte d’Ivoire is a powerful actor in the cocoa industry, accounting for more than 40% of the world’s production, output mostly fluctuates because of rain and sun. In the 2015/16 season lack of rainfall cut cocoa production by 12%. The following season, output rose again by 27%. Given that the cocoa sector alone employs 800,000 farmers and provides a living to about one-quarter of the Ivorian population, the repercussions of this volatility are significant.

“Climate change is real and strongly affecting farmers who experience periods of heavy rain or drought. There is a need to find mechanisms to make agriculture sustainable in our countries. We believe index insurance is one of them,” Rosalie Logon, director-general of Atlantique Assurances, which is part of the World Bank’s pilot phase programme, told OBG.

According to the World Bank, index insurance could strengthen the resilience of farmers in face of the climate change, while at the same time increasing their productivity and helping them access finance.

Going Rural

For insurers, index insurance is also a way to reach out in rural settings where very few people have been introduced to the concept of insurance. “Insurance penetration is very low in Côte d’Ivoire and is even lower in rural communities. Insurance firms are struggling to penetrate the rural market,” Logon said. “Small farmers do not feel concerned by insurance policies. That is why we need to set up a product that farmers can understand and accept.”

Unlike traditional insurance products that are usually addressed to individuals or small groups, index insurance can reach a greater number of people. It significantly reduces costs because the distribution component is not necessarily required. According to the World Bank, index insurance does not necessitate the usual services of insurance claims assessors, making settlement processes both quicker and cheaper.