Pula: Insurance for Smallholder Farmers

Rose Goslinga is the Co-founder and CEO of Pula. She holds an MSc in Political Economy of Development from the University of London, where she graduated with first class honours, and a BSc in Business and Economics. Rose has worked in agriculture and insurance for the last 8 years, and has deep knowledge of and ability to work with the public sector, non-profit/social enterprises, and commercial sectors. She is an energetic social entrepreneur who thrives in fast-paced environments where innovation is key. She is a Rainer Arnhold Fellow and Social Innovation Fellow from Poptech and TEDx speaker.

Smallholder farmers are usually unwilling to purchase insurance to protect themselves from agricultural risks but they are also less willing to invest in their farms for fear of losses, creating a cycle of low investment, low yield and low income. Pula helps African smallholder farmers increase yields and respond better to agricultural risk by offering them accessible, scalable climate insurance solutions, bundled with agricultural inputs like seed and fertilizer. We use technology, like satellite imaging and yield data, to determine insurance payouts. We also collect and analyze farmer data to give advice on good farming practices that increase yields and farm profits. Pula’s insurance products and agronomy services give farmers the confidence to invest in their farms and increase farm profits. Our mission is to improve agricultural productivity and food security by reducing farming risk and providing agronomy advice to the underserved market of 1.5 billion smallholder farmers worldwide.

About 85% of farms are small (<2ha), produce over 80% of the developing world’s food, and provide livelihoods to over 1 billion people, many living on less than $2 a day. Smallholder farmers face many barriers to improving their yields and incomes, such as limited access to markets, financial services, inputs and agronomy advice. They are also more adversely affected by climate risks, such as floods and drought. It is well known that improved inputs (certified seeds and mineral fertilizers) and agricultural insurance have doubled or tripled yields and lowered risk for commercial farmers. But these solutions are poorly adopted by smallholders. Most seed companies, fertilizer producers and credit providers continue to generate demand through conventional marketing channels, such as radio, branded merchandise, trade fairs and demo plots. Most insurance companies do not serve the smallholder segment. Despite thousands of demo plots and millions spent on radio, African smallholders remain reluctant to invest in inputs or insurance, with the average use of fertilizer remaining low (6kg/farmer in 2006, according to the African Union), resulting in poor yields (1.4MT/ha compared to a global average of 7MT/ha for food crops) and marginal insurance penetration rates (average 1-2%).

Pula’s insurance products and agronomy services are designed to protect smallholder farmers from the impact of climate risks by giving them the confidence to invest in their farms and increase farm profits. Pula does not take insurance risk, instead we partner with insurers and reinsurers. Our products are embedded into the purchase cost of inputs, enabling farmers to access input insurance that they would not likely purchase otherwise. We cover over 14 food and cash crops, as well as livestock, with 99% of our customers owning 0.6 acres of land and paying US $1-3 in premiums per year. We have already facilitated 2.7m insurance covers in the last 4 years, with over 1m farmers reached in 10 countries in 2019. We are on track to insure 1.5m farmers in 2020 and expect to have a customer base of 8m by 2025. Our experience and data show that giving smallholder farmers access to embedded input insurance and agronomy advice increases their investment in their farms by an average of 16% and enables yield increases of up to 56%. This creates more climate resilient and profitable livelihoods, helping to lift farmers and their families out of poverty.

Pula focuses on the world’s 1.5 billion smallholder farmers, who produce 80% of the food consumed in the developing world and account for more than half of those depending on the food and agriculture sectors for their livelihoods. Our customers have average landholdings of below 1 Ha and farm staple crops, such as maize, rice and beans, along with some cash crops, such as oilseeds and tea or coffee. On average, 33% of our customers are women. We develop agricultural insurance products and digital agronomic advisory services for this customer segment using technology and Human Centered Design. We bundle insurance with farming inputs such as seed and fertilizer, at an average premium of US$ 1-3/year, and offer agronomy advice to protect smallholders’ harvests from risks, such as drought, flood and pests. Our experience shows that giving smallholder farmers access to embedded input insurance and agronomy advice increases their investment in their farms by an average of 16% and enables yield increases of up to 56%. This creates more climate resilient and profitable livelihoods, helping to lift farmers and their families out of poverty.

Smallholder farmers are massively underserved by the insurance industry - the average penetration of insurance services in most African countries is a mere 1-2%. By embedding insurance in the farming inputs (seed and fertilizer) that smallholder farmers need and use, and complementing this with digital agronomic advisory services, Pula creates lower-risk conditions for smallholder farmers, who are traditionally left behind, to invest in their farms, increase their productivity and grow in scale and economic opportunity and prosperity.

While working at the Rwandan Ministry of Agriculture on credit services for farmers, I realized that agricultural loans could devastate farmers if the season's weather didn't cooperate and harvests failed. The Minister had a bold idea: could we offer insurance to small farmers to protect them in case rain didn’t come when needed? I dedicated myself to solving this problem. I quickly realized the biggest risk farmers face is the weather. I also noted farmers erred on the side of caution when planting, foregoing higher potential yields to manage risk yet remaining at the mercy of climate shocks, such as drought and floods. In 2015, my co-founder Thomas Njeru and I set up Pula to offer smallholder farmers weather and area yield index insurance products - bundled with farming inputs such as seed and fertilizer and complemented with digital agronomy advice - to protect their harvests from agricultural risks. Thomas, an actuary by training, grew up on a small farm in Central Kenya and was passionate about providing insurance to a chronically neglected market segment. Together, we are now insuring over a million smallholder farmers a year, with 1.1m farmers served in 11 African countries in 2019.

I grew up in Tanzania and have worked in agriculture for almost 15 years, with insurance being my focus since 2008, when I developed Africa’s first weather index insurance program for Syngenta Foundation. In 6 years, it grew from a pilot of 185 farmers to become the largest program of its kind, serving 185,000 farmers in Kenya, Rwanda and Tanzania. Along the way, I realized more was needed to reach scale - I noted that area yield index insurance, rather than weather index insurance, and an embedded distribution model were key. In 2015, I set up Pula to create a deeper and broader impact in the agricultural insurance space by focusing on area yield index insurance, the bundled delivery model, and complementary digital agronomy advisory services. My co-founder Thomas Njeru grew up on a small farm in Kenya and experienced first-hand the high-risk conditions that can wipe out a smallholder farmer’s entire harvest. As an experienced actuary, he had a solid understanding of the insurance product requirements for this market segment and joined me in our endeavour to reduce farming risk for smallholder farmers by giving them access to insurance and support services that are typically out of their reach.

My academic background is highly relevant to my field of work: I have a Bachelor’s degree in Business and Economics, with a minor in International Development, from the University of Amsterdam, as well as a Master’s degree in Political Economy of Development from SOAS University of London. In terms of professional experience, I have worked in the agriculture sector since 2006, starting as an adviser to the Minister of Agriculture of Rwanda, followed by six years creating and implementing the first weather index insurance program (Kilimo Salama) for smallholder farmers in Africa with the Syngenta Foundation. In 2015, I co-founded Pula, which develops and distributes index insurance products, as well as complementary services, to smallholder farmers across 11 countries, reaching over a million farmers per year. The skills I possess include the ability to identify and focus on key challenges and blockers to solve problems in an innovative and scalable manner, as well as the passion and drive to see ideas through to execution. With the above mix of background, experience and skills, I feel prepared to take the Pula project and model to higher levels of reach and impact, through continually expanding and improving our core offerings, and replicating the successes we have achieved in Africa in new markets in Asia and beyond.

During my first visit to Kenya in 2009, we met with about 10 banks and, while each of them was interested in insurance, they all thought it would be too expensive for farmers. We were disappointed because everybody had told us banks would be key partners for insurance distribution. We also met with a seed company to whom we explained our concept product. They told us that since the rains were delayed that season, they hadn't sold much seed yet as farmers were not investing in inputs without any signs of rain. Based on that observation, we started developing a value proposition for insurance that was not just for banks but also for seed companies and, over time, became a key pillar for our project i.e. insurance delivery through non-traditional channels, particularly as part of an input bundle. I believe that when you run a business, you meet challenges and rejection on a daily basis. So I take the approach of finding that small window of opportunity and making it bigger as you build your business. This allows you to respond to any kind of situation in a creative and optimistic way.

When I started Pula 5 years ago, it came out of a real belief that agriculture insurance had potential and that a profitable business could be established. However, I believed that to create this business you did not need money as much as you needed leadership and vision. When I started working on agriculture insurance 10 years ago, I began at a large corporation, Syngenta, and we had abundant funds to run various projects. However the structures of the corporation never allowed us to innovate, since that also meant taking risk and accepting uncertainty, to which large organizations respond with difficulty. So agility was a focus when I started Pula. We never had more than 3 months of runway for the first 3 years of the business, but we focused on generating revenue and ploughed all our profits diligently back into the business.

Until now, the bundling of yield index insurance with agricultural inputs and services has not been implemented at scale. Agriculture insurance has been offered as a traditional, stand-alone indemnity insurance cover that is affordable and profitable only for large agricultural enterprises. This project is innovative in four aspects:

1. Technological: using technology such as remote-sensing data, drones, etc. to refine the insurance products as well as increase the cost efficiency of the business model;

2. Social innovation: “personalizing” the abstract and mistrusted concept of insurance by working with community-based and trusted shop assistants for customer distribution, marketing and distribution;

3. Business process: yield index insurance is a more comprehensive and reliable insurance mechanism, representing a departure from indemnity based insurance;

4. Client acquisition: integration of insurance with agricultural inputs, i.e. a “pull product” that farmers actively demand and purchase, thus overcoming challenges of distribution and client acquisition.

Pula’s theory of change is to develop innovative agricultural insurance products and distribute them to smallholder farmers by bundling insurance with the farming inputs smallholders already value and purchase. This introduces insurance to farmers and enables them to manage agricultural risk effectively, invest in their farms incrementally, and grow their income sustainably. By working closely with seed and fertilizer companies, and structuring insurance products to increase sales of seeds and fertilizer, Pula creates a business case for folding the insurance premium cost into the price of inputs. Farmers then only need to register for the insurance, which they receive as an add-on to the seed or fertilizer. This approach allows people who have never purchased insurance to experience it in a context that is highly relevant and beneficial to them, motivating them to trust in and use insurance as a tool to manage farming risks and become more resilient to shocks.

The key elements of Pula’s theory of change are:

Market Challenges

• Low capital allocation by financial service providers (FSP), particularly insurers, to the agriculture sector

• FSP’s limited understanding of financial and insurance needs of smallholder agriculture sector

• FSP’s limited capacity to assess and mitigate risks associated with agriculture

• Limited availability of risk capital to incentivize FSP’s to lend to and insure the agriculture sector

Investment/Inputs Required

• Technical assistance for development and delivery of data-based, digital insurance products

• Capacity building for partners’ staff and target farmers

• Market awareness campaigns 

• Convening and facilitation of partnerships

Outputs

• New data-based insurance products developed

• Partnerships between insurtech, FSP’s and agriculture value chain actors

• Partners’ staff trained

• Emerging insights shared with the broader industry 

System Changes

• FSPs become more responsive toward financing of agriculture sector

• New partnerships between banks and financial technology companies 

• New products targeting agriculture value chain players operating sustainably

Impact

• Increased access to insurance by agriculture value chain partners

• Increased allocation of private sector investment to agriculture value chain actors

• Increased farmer productivity leads to job creation and increased incomes, which contribute to poverty reduction

• Better agricultural risk management leads to increased smallholder resilience to climate change 

Pula currently serves over 1 million smallholder farmers per year with index insurance products that protect their harvests and livestock from climate shocks, such as drought or floods, as well as pests and disease. Our farmer reach per year for the past five years has been: 

2019 - 1,100,000

2018 - 812,000

2017 - 610,000

2016 - 315,000

2015 - 244,000

Total to date - 3,000,000

We aim to serve at least 1.5 million smallholder farmers in 2020 and we have an annual reach target of 8 million farmers per year within the next five years i.e. by 2025. The numbers given are for smallholder farmers directly insured through Pula and benefiting directly from insurance payouts and agronomy advisory services. Taking their households into account as indirect beneficiaries of our insurance coverage, and assuming 5 members per household, our combined direct and indirect reach increases to 7.5 million in 2020 and 40 million/year by 2025. 

At Pula, our mission is to “seed farmer confidence and grow rural wealth”. Our vision is to “be the world leader in protecting and connecting farmers”. The first refers to creating conditions that give smallholders the confidence to invest in their farms. We do this through effective risk management solutions (insurance, agronomy advice) that lead to increased productivity and improved livelihoods. The second refers to becoming a leader in the innovation and distribution of insurance and complementary services for the world’s smallholder farmers. We do this by creating financial safety nets, while allowing farmers to access and connect with high-quality financial products, agricultural markets and growth networks. Having been a pioneer in this space with the creation of the first weather index insurance program in Africa, we have remained at the forefront of innovation in agricultural insurance, developing and championing new, more reliable yield index insurance products, as well as a novel embedded distribution model. These innovations have enabled us to grow our reach from a quarter of a million per year in 2015 to over 1 million a per year in 2019 and convince governments and industry partners in 11 countries about the positive impact of our risk management approach. We aim to take our model to scale in new markets and further develop our offerings. We want to revolutionize both the agriculture and insurance markets, forging an accessible pathway for the world’s poorest and most marginalized farmers to participate in them. 

In any market, insurance is a difficult sell. Nobody wakes up in the morning thinking; “I want a new pair of insurance”. So the key for growth of our products has been bundling our products with others, such as credit, fertilizer and seeds. Overcoming the perceived barrier with farmers that insurance is something ‘for rich people with cars’, through developing innovative distribution channels, is key to our long term success.

Continuously developing and testing new distribution channels is key for our long-term growth. We work with fertilizer and seed companies to package insurance together with bags of inputs, targeting millions of farmers who look to invest in their farms with improved seeds. We build business cases for these companies where, based on data collected during the insurance sign up process, they can understand their customers better and therefore sell more effectively to them. In return, the companies pay the insurance premiums, making the product free to the farmers. By introducing smallholder farmers to insurance, many for the first time ever, we are able to build their trust in insurance one insurance policy at a time, over time encouraging them to buy or invest in insurance themselves.

Partnerships are at the heart of what we do. Our model includes forming partnerships between the key entities required to create an end-to-end chain for delivery of insurance and agronomy advisory services to smallholder farmers. Our integrated partnership model includes input manufacturers, last mile agrodealers and distributors, insurance and credit providers, national and sub-national government agencies, and farmer organizations and trade associations. Using insurance as an entry point, we unite partners from different domains on our platform: national governments (Nigeria, Zambia), insurers (Leadway Nigeria, UAP Kenya, APA Kenya, NAIC Nigeria, LION Uganda, Radiant Rwanda, Munich Re, Africa Re, SCOR, and Swiss Re), credit providers (Dangote Rice, One Acre Fund, Babban Gona Nigeria), seed and fertilizer companies (Bayer Crop Science, Flour Mills of Nigeria), and mobile network operators (Safaricom, Kenya). To these partners we offer risk management, transaction execution and implementation services. We offer comprehensive risk analysis and assessment both through remote sensing, GIS and on-ground yield assessments, quantify risks and develop mitigation and transfer options, such as weather and area and group yield index insurance.

Pula’s business model relies on the structuring, product development and settlement of agriculture insurance solutions, as well as the provision of digital services to the agriculture sector. The focus of our market are smallholder farmers, whom we reach with our services through partnerships with farmer aggregating organizations, such as NGOs, banks, national governments and seed or fertilizer companies. We do not take on insurance risk but partner with national insurance companies and international reinsurance companies. These activities generate the following revenue streams for Pula:

• the distribution and structuring of agriculture insurance products, (Insurance Commission, paid on a per farmer insured basis)

• digital marketing and data solutions for input/fertilizer companies (Management fees, paid on a per farmer serviced basis)

• claims and loss adjustment on behalf of partner insurance companies, (yield measurement fees, paid on a per farmer insured basis)

• providing advisory services on structuring and execution of agriculture insurance schemes (Consulting Fees, paid on a man hour basis)

We have different product lines. In one, we reach farmers through aggregators such as banks, NGOs and governments, and structure insurance products for these organisations. This product has a gross margin of between 70-80% and is already profitable. We have a second distribution channel in which we work through seed and fertilizer companies and reach farmers, targeting the estimated 300 million farmers across Africa that do not access any official (government or NGO) program or credit scheme. The gross margin for this product is 30% at scale, but we have only reached scale with this product in Zambia and Malawi so far. We are building partnerships in Nigeria and Kenya to grow this program in other markets as well.

We have so far raised USD 3m in equity funding in our seed round, and have generated revenue from year 1.

We are currently raising a USD 8m series A round.

We are operating on a budget of USD 4m for this year.

As we have built and grown our business, we have experienced the power of having ‘Angels and Advocates’, who bring our story to a wider audience and who help us expand our footprint and the base of farmers we serve. We are therefore not just applying because of the financial reward but also as a way to broaden the network of supporters of Pula and those who back our mission to protect smallholder farmers worldwide.

We are open to exploring specific goals and modes of engagement with partners who wish to work with us in the above areas.

We are always looking to partner with governments, credit providers, seed and fertilizer companies, and mobile network operators that can help us expand our footprint and grow the base of farmers we serve.