Authored by
BILAL MUGHAL
CEO,
Blue Marble Microinsurance
Coffee smallholders have scant access to affordable insurance cover against the vagaries of weather. At Blue Marble Microinsurance, a startup founded by a consortium of insurance companies in 2015, we aim to provide socially-impactful and economically-viable insurance protection to the underserved. And that’s exactly how the successful Café Seguro scheme in Colombia got off the ground.
WHAT MATTERS
“WHAT MATTERS IS NOT TO KNOW THE WORLD BUT TO CHANGE IT.”
FRANTZ FANON
The UNESCO World Heritage-listed Eje Cafetero (“coffee-growing axis”) in the western mountains of Colombia is extraordinarily beautiful. And yet, heartbreakingly, the scars of decades of violent social strife invisibly blight the verdant, rolling vistas.
My first trip there in March 2017 was just a few months after the peace agreement with the FARC was signed. In its wake, I had naively hoped for a blossoming optimism. But things are never so simple. Conversations with locals invariably touched on stories of pain, a sense of justice denied and a fear that the hard-fought peace remained precarious.
Social inequality remains endemic. And so our work took on a new-found poignance: more than just a financial-inclusion initiative it was something that could help in some small way redress root problems in this part of the world and perhaps, dare we dream, even tip the precarious balance decisively towards the better.
TECHNOLOGY CREATES AN OPPORTUNITY FOR COFFEE SMALLHOLDERS
Worldwide, less than 20% of smallholder farmers have some kind of insurance cover to protect themselves against damage to their crops due to extreme weather or various other perils. Many factors lie at the root of this unfortunate statistic: difficulty accessing remote, dispersed, rural communities, low awareness and knowledge of insurance, and the expense of traditional damage-assessment based insurance offerings.
In 2016, Nespresso partnered with Blue Marble Microinsurance to systematically address these factors to create a viable, impactful and enduring index insurance program for all coffee smallholders in Colombia.
INDEX INSURANCE IS MORE AFFORDABLE
Index insurance is significantly more affordable than traditional indemnity insurance in that it pays out based on pre-determined levels on a scale of extreme weather (the “index”) and does not require expensive damage assessment. Worldwide, many have piloted the concept for 20 years, but the challenge has always lain in the solution design details. In particular, how closely can the index performance match the actual loss experience? The variegated terrain and micro-climates in the coffee-growing regions of Colombia make this a particularly tough challenge.
It was Nespresso’s direct contact with smallholders combined with farmers’ recall of adverse years and Blue Marble’s technology that provided the breakthrough.
CAFÉ SEGURO, AN INSURANCE PRODUCT FOR COLOMBIAN COFFEE SMALLHOLDERS
After almost two years of careful technical development2 and insurance program design, we launched Café Seguro in July 2018 as a pilot for Nespresso’s smallholders in the Caldas region, underwritten locally by Seguros Bolivar and with international reinsurance provided by Blue Marble’s owner companies.
Café Seguro protects against the farmers’ main weather risks: excessive rain during the flowering phase of the coffee tree and lack of rain during the grain filling phase which has within it several stages.
Payouts are made for excessive or deficient rainfall in each at-risk growing phase: flowering and grain filling
In line with the sustainability ethos of both Nespresso and Blue Marble, we enhanced the value to the smallholder farmers by carefully keeping frictional costs of operation as low as possible.
The first pilot period from July 2018 to September 2019, spanning the two annual harvest periods (Mitaca and Principal), saw a payout made to all 1,858 insured farmers. Receiving payouts served to build trust in the program, vital for long-term adoption by a community with little prior experience with insurance. (The cooperatives paid for the premium by electing to use their Fairtrade funds.)
The pilot’s success attracted significant premium subsidies from the Government of Colombia for the second year of coverage starting in July 2019, allowing us to cover even more of the production costs at risk and expand the program's scale to additional smallholders and new cooperatives. The third and currently ongoing year of the program began in July 2020, witnessing sustained expansion to reach over 9,000 smallholders and 22,000 hectares.
WE’VE ENABLED ALMOST USD 1M IN PAYOUTS TO DATE, STABILISING SMALLHOLDER FARMERS’ INCOMES AND CONTRIBUTING TO THEIR PEACE OF MIND WHICH, IN TURN, ALLOWS THEM TO INVEST IN IMPROVING FARM PRODUCTIVITY.
AN ENDURING SUCCESS
The program has been vindicated in numerous positive testimonials from smallholder beneficiaries and has received acclaim from the government. It’s attracted the keen interest of the Federacion Nacional de Cafeteros, the influential national coffee growers federation.
Café Seguros is a rare example of an enduring, successful, socially-impactful index insurance program, established by the private sector.
CAFÉ SEGURO, THE KEY SUCCESS FACTORS
Most index insurance schemes worldwide do not survive the pilot. We attribute the longevity and resilience of Café Seguro to:
- Mission alignment between the key partners
- Obsessive focus on understanding true exposure to the perils so that the designed solution can target the greatest vulnerabilities over the times that matter most in the growing calendar
- Our technology that industrializes solution building over a large scale but also locally customized for micro-climates, effectively breaking the tradeoff between reach and richness
- Choice of design features that build trust, such as the use of progressively larger payouts by the degree of weather inclemency and not just an all or nothing payout
- Secure access to risk capital via Blue Marble’s owners
CAFÉ SEGURO PARTNERSHIP ECOSYSTEM
REFLECTIONS FOR THE FUTURE
Over the years, Café Seguro has played a significant role in progressively embedding a microinsurance culture to manage weather risks in coffee farming communities. We are adding new cooperatives and growing. At the same time, together with Nespresso and other partners, we are investing in several operational areas for greater efficiency. For example, we will make greater use of digital payment channels that have seen increased adoption in the wake of COVID, thereby also making it easier to reach independent, remote farmsteads.
Our flexible design and technology add to the program’s resilience. For example, any unexpected reduction in government subsidies can be buffered by dynamically adjusting levels of cover in the index design to accommodate any risk appetite or premium affordability.
We applaud the critical role that Nespresso has played in innovating alongside us and catalysing microinsurance not just for its supplier smallholders but also for the whole coffee sector in Colombia.
Looking ahead, we are excited to continue this vital partnership with Nespresso, both for expansion within Colombia and to replicate the success of the Café Seguro model to other Nespresso coffee-sourcing countries.
1 Agricultural insurance for smallholder farmers: digital innovations for scale, GSMA
2 Supported by AgriLogic Consulting and, before that, the IRI team of Columbia University
