Case study: Swiss Re and Oxfam

The story.
About 1bn people do not have enough to eat. Oxfam, the relief and development non-governmental organisation, estimates it can cost up to seven times as much to relieve famine with aid as preventing such a disaster in the first place. Its mission therefore includes developing programmes that help poor populations overcome poverty.

In 2007 Oxfam and reinsurer Swiss Re began discussions on how insurance could help achieve Oxfam’s goals.

The challenge.
Droughts evidently create devastating risks to crops and to families that depend on them for food and income.

Oxfam, Swiss Re and partners decided to try to create a new market for crop insurance by implementing a work-for-insurance plan. Insurance companies and non-profits would link up to use this market-based solution to help poor African farmers mitigate the effects of drought. It would also have the potential to create new insurance and risk-management markets.

Ethiopia presented a good opportunity to explore the idea. It suffers from intense drought and flooding and the precarious livelihoods of the country’s farmers deter them from trying new farming methods or taking loans for, say, better seeds. Also, an aid relationship already existed.

The strategy.
First, Oxfam consulted farmers and outlined the principles of insurance. The idea for an “insurance-for-work” scheme came from a farmer in Tigray, who was in a government “food-for-work” programme in which food is dispersed after certain work projects are finished. The farmer indicated great interest in buying insurance but only “if I could pay for [insurance] with my labour, the same way I pay for food”.

In 2008 Oxfam and Swiss Re adapted Harita, a livelihood development plan that packages crop insurance with access to credit, savings schemes and advice on crop yields. It has since evolved into a “rural resilience” package, now called R4. Oxfam and Swiss Re gave local insurers and partners the confidence to adapt the food-for-work schemes to make crop insurance available in a similar way for the first time.

The key to offering crop insurance to very poor people is to keep costs down, and index insurance – which pays out all policyholders when factors related to crop failure occur – is less expensive than verifying farm-by-farm claims. Oxfam, Swiss Re and partners designed such a scheme based on rainfall data. Oxfam uses satellite information, while farmers also have cylinders on sticks to measure rainfall themselves. If rain fails to reach certain levels, the policy pays out.

The Oxfam Harita/R4 project is innovative because it was born from cross-sector partnerships, it empowers local insurance and finance companies, it allows local people to sell locally and it represents demand-driven product development for the poor.

It also integrates insurance with risk reduction because the work farmers do for the insurance relates to outcomes, such as digging ditches or cleaning seeds.

The results.
In 2009 insurance was available to 200 families in one village, two-thirds of whom paid with labour. The target for 2011 of enrolling 13,000 families in 45 villages has been met.

Swiss Re has now agreed to contribute $1.25m over five years to help extend indexed crop insurance to other countries.

The lessons
Including local people in product design and adapting existing schemes to avoid a long learning curve are keys to success.

Swiss Re’s pledge of continuing support suggests to stakeholders a sincere attempt to build a new market with long-term, market-based solutions.

Creating programmes where local people help each other, with the support of global players such as Oxfam, Swiss Re and governments, builds self-reliance and local capacity that benefits local people and international stakeholders.

Although it is early days, the scheme indicates a new way to make profits while also making a difference.
- Financial Times, 31 Oct 2011