Weather insurance for African farmers

Globally, 470m farmers are dependent on rainfall. Less than 3% are protected by crop insurance. This makes their income highly unpredictable especially considering changing weather patterns. It also excludes them from affordable loans, as they are considered “high risk” customers by lenders.

OKO provides affordable and universally-accessible crop insurance to farmers in emerging countries, using two innovations:  -Index insurance products: OKO uses a new form of insurance where payouts are directly paid based on remote weather observation, therefore providing instant payouts and full transparency - Mobile distribution and payment: OKO's insurance is accessible from any mobile phone, with no requirement for an internet connection. Even to illiterate farmers thanks to our call-back request solution in local language.

OKO is currently available in Mali and Uganda. Scaled-up globally we could unlock the full potential for millions of family farms and break the poverty cycle affecting those who feed the world.

Despite representing the majority of the workforce in most developing countries, farmers are excluded from most financial services. Their applications for loans are turned down because of their unpredictable source of income, and no insurance is offered to them to stabilise this income. Due to the absence of financial safety nets, hundreds of millions of farmers are at risk every year of falling back into poverty if they are affected by an adverse season. And this risk is increasing with the effect of global warming on seasonal cycles.

These farmers remain un-insured because traditional crop insurance was never designed for isolated smallholder farmers. Sending an expert to their farm to create a quote and verify the extent of the damages at the end of the season is not scalable. And distributing insurance in the first place is very challenging: these farmers have no bank accounts, no financial education and life far from cities and points of sale.

But while for decades these obstacles were impossible to overcome, today’s technologies make it possible to do things differently and offer an alternative to these 2 billion farmers who currently can only pray for favourable weather.

OKO leverages technologies that have become available to create affordable and accessible crop insurance products:

-We use satellite imagery analysis to identify the risk of adverse events in parts of the world where the risk was previously not measured. We use this same data to validate claims and trigger payments at the end of the season. -We developed mobile-based tools for distribution: our direct integration in mobile money platforms allows us to leverage the high mobile penetration to reach as many customers as possible in the countries where we operate. Our crop insurance is therefore universally accessible, which is an exclusivity in Africa.

Farmers can use it to secure their income and improve their risk profile to become eligible to micro-loans. Insurers can use our innovation to bring a relevant insurance product to a segment of the population that was previously unreachable. Mobile operators can use our solution to offer a new "mobile financial service" that matches a strong need of rural users.

We are addressing the 80% of the 500 million smallholder farms in the world who are fully reliant on rain for their income and are un-banked. Many of them are illiterate, most of them are un-banked and don't have an internet connection. But all of them have a mobile phone. Our typical customers grow 1 to 2 hectares of land and it it their main source of income.

We conducted initial "customer discovery" to understand their needs, which made it clear that even if they don't know how insurance works, they were very interested in the benefits of insurance.

We then tested the solution on a limited number of customers, which led us to understand how to reach them and overcome the barrier of illiteracy and lack of financial education.

Our solution now leverages the ubiquity of mobile phones, while retaining an important element of human support: we are universally accessible from any phone through the use of SMS and USSD technologies, and we offer support in local language thanks to a team of field agents who are trained and equipped to support customers, as well as a local call centre.

All smallholder farmers shared with us the same need: access to capital to buy better seeds, more fertilisers, and grow more. But they are currently unable to borrow money at a reasonable rate as micro-finance institutions consider it to be a risk.

With crop insurance, farmers can significantly decrease this risk and become more attractive to micro-finance organisations. In Mali, where we already insure 1000 farmers, we signed a partnership with a lender, who will lift guarantee requirements for insured farmers. Insurance is used as a collateral and it already helps farmers a lot to finally access funding.

OKO's insurance products are innovative compared to traditional insurance products as we use "index-insurance" products: claims are paid when specific threshold are reached (cumulated rainfall, wind intensity etc.). This saves us from sending claim adjusters on site and allows us to offer affordable insurance products with immediate pay-outs.

Within the index-insurance solutions, OKO further innovates through its distribution model. While other companies rely on third parties to distribute insurance (micro-loan providers, NGOs, cooperatives), OKO designed distribution tools and provides last-mile distribution. This includes a full integration in the Mobile Carrier's mobile money menu, a call centre, an app for our distribution agent, communication via voice messages (voice SMS and Whatsapp) and more. Customers are able to pay in small instalments, and can also request that their relatives pay (or contribute) to their insurance policy. Some demonstrations of our interface are available here: youtu.be/tBbKvsKpQzA 

and here:

youtu.be/5pg5WmrbD4

OKO keeps innovating to optimise its distribution model, and is now working on further automation via an Interactive Voice Response system and a Whatsapp Chatbot.

OKO also works on new insurance products to protect against pests and diseases.

OKO uses a distribution model that already works for life and health insurance, as proven by BIMA and MicroEnsure, two leading companies in this space.

OKO was launched commercially in Mali in January 2020. Since this launch event, close to 5,000 farmers registered to OKO and 1,816 paid their premiums to be insured for the upcoming season. This proves a strong interest in our solution, and the success of our distribution model. Indeed, despite only covering corn producers and being affected by pandemic-related restrictions, we managed to keep growing thanks to our digital distribution.

OKO also won the 2019 Fintech Showcase by the Alliance for Financial Inclusion (group of central banks and regulators), which shows that this solution si also supported by the regulators. https://www.afi-global.org/news/2019/09/winners-afis-first-ever-fintech-showcase-take-bow

OKO signed partnership with agro-industries such as ABInBev and Touton who see in OKO the solution to reach their sustainability goals.

OKO uses a mix of 2 technologies:

 - Index-based weather insurance, which has been used repeatedly in the past 10 years, and is proven as an efficient way to bring insurance to smallholder farmers. A study by IFAD has been comparing different such solutions in a very comprehensive paper (https://www.ifad.org/en/web/knowledge/publication/asset/39552352)

We have used the same methodology to measure the accuracy of our product, and our product scored higher than the average of all 6 products in all criteria. It fails to score higher than the highest-scoring product, but we are working on improving it continuously.

- Mobile payments:

Mobile Money technology has been around since 2006 and has been a real game-changer in the African payment space. It is now used by more than 372 million people (https://www.gsma.com/sotir/wp-content/uploads/2020/03/GSMA-State-of-the-Industry-Report-on-Mobile-Money-2019-Full-Report.pdf) of which 181 million in Sub-Saharan Africa. It has proven to improve the life of people by saving them time and risk by replacing traditional payment methods.

Crop insurance has the potential to start a virtuous circle for the 500 million smallholder farms in the world.

Indeed the strongest need expressed by farmers is access to micro-loans and to seeds / fertilisers. Their exposure to climate risks makes it very difficult for loan providers to serve them.

OKO educates farmers to insurance, and allows them to get insured. This insurance, in turns, allows them to access micro-loans to buy better seeds and more fertiliser, leading to more production and higher income.

In the long term, this also makes agriculture more attractive to the younger generation, currently tempted to move to the city to find more stable jobs.

Launched in January 2020.

Serving today: 1,816

By the end of the year: 3,776

In one year: 30,000

In 5 years: 998,000

For the rest of the year, our plan is to continue to improve our distribution system, and reduce the Customer Acquisition Cost. In parallel we will measure the retention rate. Our goal is to ensure profitability at an individual level.

Once this is achieved, our goal will move to scaling-up: investing in setting up the OKO solution in more markets and growing our capacity in each market. this will be our goal for the next 2 years.

In parallel we will work on developing new insurance products to insure other risks (pests and disease) and possibly diversify to other sectors (e.g. work interruption insurance for informal workers in cities, flood insurance for SMBs etc.)

We see a strong demand from the public and private sector for our solution. But as of today we are limited by two factors:

- Our business model requires upfront investment to set-up the solution locally and grow the user base before significant revenues can be generated. With limited funding at this stage, we are unable to scale up to more countries as quickly as we want

- Regulation: as we are positioned as an insurance agent, a licence is required in each market that we enter. This can take a few months and limit our ability to scale very rapidly.

Financial barrier: OKO is 

1. raising funds from private investors and
2. looking for partners who are capable of co-financing the initial operations of OKO.

Regulatory barrier: OKO can initially launch without a licence, by positioning itself as a "group policy holder" and recruiting member for this policy. This is during the initial stage when OKO is testing the model in a new market, and can give us time to apply for the agent of broker licence. In west Africa, the same regulation applies to all the sub-region (CIMA regulation) and OKO is already a licensed agent in one market, making it easier to obtain the licence in other markets.

9 people work full time for OKO: CEO, CTO, Lead Actuary, Developer, Country manager (Mali), Sales Director (Mali), Partnership manager (Mali) + 2 call centre agents

7 regional managers work on a seasonal basis

30 distributors are working as subcontractors (paid via commissions)

SIMON SCHWALL – Founder and CEO, Master in International Management – HEC Paris & CEMS

Simon worked as a management consultant in London and Dubai for 3 years. Then Simon worked for 4 years at BIMA, a leading Start-Up in mobile-delivered insurance (Life and health). He launched and managed BIMA’s operations in Papua New Guinea and Fiji, managing up to 250 people and created the most popular insurance products in the Pacific. His impact on financial inclusion was rewarded by an award from a UN organisation

SHEHZAD LOKHANDWALLA – Chief Technical Officer, Bachelor’s degree in Computer Science – UC Davis
Shehzad started his career at the Mobile Strategy and Web-development team of UN OCHA. Since then, he kept developing technologies that impact development: in Laos with Friends Without a Border, in Tanzania with the Tanzania Education Corporation and more recently in Kenya with the One Acre Fund. He developed an expertise in creating impactful technologies for smallholder farmers.

RAPHAEL HAZIZA - Lead actuary, Masters in Actuarial Science from ULB (Belgium) and Sorbonne University (Paris)
5 years of experience in actuarial sciences working for a large re-insurance company (SCOR Group) before joining OKO.

MARIAM DOUMBIA – Bachelor in International and Development Economics from Richmond University (London). Mariam worked as an investment analyst for CrossBoundary, and then as a programme manager in Bamako’s leading incubator.

Allianz Africa - 3 year partnership signed last year. Allianz reinsures the products that we design and introduce us to their local insurance companies for market compliance and distribution

Orange Mali - Standard partnership for Mobile Financial Service Provider + commitment by the CEO. Orange offers us access to their Mobile Money service, co-developed our menu and is supporting our marketing effort

ABInBEV: part of their 100+ Accelerator. Financing a pilot in Uganda to bring insurance to their barley producers

BAOBAB Mali (MicroFinance organisation): partnership agreement to give exclusive benefits to OKO members when they are asking for an agricultural loan.

Revenue:

OKO's business model is that of an insurance broker: OKO takes a commission out of every premium paid by farmers registering to its insurance product. This is beneficial to insurance companies or mobile operators who want to add this service as there is no upfront cost for them to launch OKO in their market. If the product is a success, it will increase their revenues, but if it doesn't they make no loss.

Operators want to add OKO to their suite of Mobile Financial Services because their need to generate transactions on their Mobile Money platform. And insurers need to launch micro-insurance product to comply with their regulator's objectives.

For OKO, this means that it is key to have enough customers and operate long enough to recoup on initial set-up and customer acquisition cost. But with a retention rate of at least 70% (measured on pilot customers), OKO will be able to generate significant profit in the years to come.

Impact:

- In the short term, OKO has a strong impact on financial inclusion. Directly as it offers farmers a financial safety net. Indirectly as farmers gain access to micro-loans. These two elements are measured regularly and provided to our impact investors

- In the longer term, OKO is mesuring the "progress out of povery" index for families that use OKO and compares it to that of families that don't use OKO. We will look at the benefits of securing their agricultural income over a long period of time.