In 2015 and early 2016, a severe drought drastically reduced water supplies and agricultural production in South Africa. Maize and other crops did not grow, livestock was threatened to starve. Especially smallholder farmers and their families were heavily impacted not only by losing their income but also risking going hungry. Economic loss from the drought was estimated close to half a billion USD.
Although insurance could effectively reduce the vulnerability of smallholder farmers towards extreme weather events like drought, as of today less than one percent have access to agricultural insurance - thus leaving an estimated 1.7 million smallholder and subsistence farmers in South Africa uninsured against weather related risks. Although the Department of Agriculture has a disaster relief programme, its ex-post financing has proven not to be timely and has led to a significant number of these farmers being left destitute due to delays associated with the current programme in place. Hence, Adam Maniki Rakgalakane, Managing Director of Land Bank Insurance Company, emphasises the relevance of the innovative insurance product: “With the support of the InsuResilience Solution Fund we will develop a drought insurance solution for smallholder farmers, which will allow faster pay-outs and relief in case of a drought.
To improve access to agricultural insurance for smallholder farmers, the InsuResilience Solutions Fund (ISF) represented by its management, the Frankfurt School of Finance and Management, South African Land Bank Insurance Company and Celsius Pro have signed a grant funding agreement. This grant - the first provided by ISF since its commencement of operation in 2019 - will serve to co-fund the development and market introduction of an innovative index-based insurance for crop and livestock for smallholder farmers in South Africa, intending to provide insurance cover to some 240,000 people by 2021. As a government-owned institution, Land Bank and its subsidiary Land Bank Insurance Company are mandated by the government to facilitate access of poor and vulnerable population to financial services. In order to offer insurance protection to the unserved Land Bank Insurance Company is partnering with CelsiusPro, a highly experienced Swiss Insurtech company specialised in inclusive climate and natural catastrophe insurance. Mark Rueegg, CEO of CelsiusPro: “We are proud to provide, an automated insurance administration platform enabling quick payouts, reducing costs and making insurance affordable for smallholder farmers. It is our aim to include poor and vulnerable people into the financial system.”
Dr. Annette Detken, Head of InsuResilience Solutions Fund, points out: ”The project shows the way to concrete and scalable solutions improving resilience and adaptation to climate impacts.” This innovative climate risk insurance thus represents an illustrative example for the Resilience and Adaptation action track of the UN Climate Action Summit to be convened by UN Secretary-General António Guterres on September 23 in New York.
The ISF has been set up and is funded by KfW on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ). It is a pivotal delivery channel of the InsuResilience Global Partnership, a joint initiative of the G20 and V20 to reduce vulnerability of poor and vulnerable. The ISF supports innovative climate risk insurance solutions to mitigate the negative impacts of climate change. It offers co-funding and advisory for the implementation of new climate risk insurance concepts into marketable products and the expansion of existing, sustainable climate risk insurance products. Under the condition that the applicants commit a meaningful own contribution of 50 per cent of the requested funding, ISF provides grants of up to 2.5 million euros.