The Land Bank Insurance Company (LBIC) will pilot index insurance in South Africa over the next two years, targeting smallholder producers, with the aim of providing affordable drought-risk insurance for both crop and livestock farmers.

The company asserts that index insurance products have proven to be a cost-efficient and administratively effective way to insure smallholder and semi-commercial farmers.

Under these solutions, claim payouts are triggered when an objective and pre-agreed index, such as rainfall or soil moisture levels measured over a period of time, exceeds a certain threshold. As index insurance does not require the services of claims assessors, claims settlement processes could be quicker and more transparent, LBIC says in a statement.

The index insurance products have been developed in partnership with CelsiusPro, which assists private and public organisations globally in understanding and mitigating the financial impact of climate risks.

This initiative has been backed by grant funding from UK-based Global Parametrics, which supports solutions that build resilience against natural disasters and climate change.

“The pilot project to implement index insurance will be run in five provinces, namely the Eastern Cape, Limpopo, North West, KwaZulu-Natal and Mpumalanga. Geographically, these provinces constitute 75% of smallholder farmers,” LBIC MD Pascal Siphugu informs.

“Drought is the main risk affecting the vulnerable farming communities in South Africa, a semi-arid country. The country is also vulnerable to climate change and El Niño which can further exacerbate drought.

“As such, an insurance product of this nature is critically important for the sustainability of agriculture in South Africa, with approximately 250 000 smallholder farmers and a further 1.5-million subsistence farmers largely uninsured due to a lack of tailored agricultural insurance solutions for this market segment,” he asserts.

Siphugu informs that the rollout of Index Insurance will begin in the last quarter of this year, with awareness and training for the livestock index product.

Under the terms of the partnership, CelsiusPro will use its proprietary White Label Platform technology to develop and implement a tailored digitised solution for LBIC.

This solution will automate the entire product distribution process and manage all aspects of administration – from pricing and policy management to monitoring and settlement.

“We are delighted to partner with LBIC to accelerate the role of index insurance in strengthening climate resilience and food security in South Africa. We look forward to deploying our platform technology to support LBIC in introducing innovative agricultural insurance products to the South African market. This project further underscores the scalable impact of the catalytic grants of the Natural Disaster Fund,” highlights CelsiusPro CEO Mark Rueegg.