Research & Analysis

Using Satellite Data to Scale Smallholder Agricultural Insurance

Smallholder families that use agricultural insurance can increase investments in more productive farming and nonfarming ventures as they feel more confident in managing related risks. However, significantly scaling the use of agricultural insurance among smallholders has been difficult in many parts of the world, especially in Africa. 

This paper looks beyond the excitement of the vast possibilities for satellite data applications to promote scale in smallholder agricultural insurance. It documents lessons learned from using these data to reduce the costs and improve the quality of smallholder agricultural insurance in Nigeria and Kenya. 

Through a collaboration between CGAP and Pula, an insurance and technology company serving smallholders in Africa and Asia, we learned how important it is to tailor analytical approaches to the country and market context. Consistent with similar past initiatives, our initial goal was to develop an algorithm that predicts individual farmer yields with satellite data to reduce insurers’ costs. As we moved through the process, however, we reconsidered our initial goal. The lessons along the way led us to a new goal of using satellite data to define larger land units insured by providers to achieve significant operational savings when serving smallholders. The Brief, which details this approach, aims to inspire practitioners and development professionals to tailor this work to fit their own context and to speed up innovation in smallholder insurance markets.

The experience also shows that it is critical for insurers to partner with public and private actors to facilitate access to accurate yield data, which are needed to complement satellite data. Yield data are most useful when they come from a wide spectrum of smallholders, including vulnerable ones who tend to be excluded from well-structured value chains. Partnerships with private actors can ensure accurate yield data from commercial smallholders, but partnerships with public actors who have access to yield data from more vulnerable smallholders are important, too. This not only ensures insurance products are appropriate for poorer smallholders, but it also is a key factor in robust correlations between satellite data and client losses.