1 June 2018

Africa: Protecting Farmers Against Climate - Micro-Insurance Start-Up Worldcover Pioneers New Approaches in Africa

interview

Rural farmers are very vulnerable to weather: droughts and extreme storms can wipe out their living. WorldCover was set up by someone who worked in a Hedge Fund and wanted to have more of an impact on peoples' lives. Russell Southwood spoke to Christopher Sheehan, Co-Founder and CEO about making farmers' lives financially more secure.

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Q: Where did the idea for WorldCover come from?

A: For me, it's an extension of my financial career. I was in a hedge fund in New York and was jaded by making rich people richer. I wanted to make an impact on people's lives and I thought I would do an impact fund. After I looked at this, I realized that micro-insurance had big potential for impact but was not getting into the market.

It also looked like a fairly good investment if we could underwrite it and get a good margin, which is why people like Swiss Re are not doing this. There are obviously issues around things like local distribution. So I saw this as an opportunity to use my MIT finance skills.

Q: When and where did you start?

We launched in 2015 and started working in Ghana. We thought there would be time for Asia and Latin America later. We wanted to use a lean start-up approach and understand the customer first.

We interviewed farmers as we wanted to go into an area of rural Africa. We asked questions about what they were most worried about. The biggest response was about when the rain came and the rest was about fertilizer loans.

We realized that typically insurance companies were not serving rural populations. They didn't how to sell and distribute their products and needed to sell something with a huge premium for it to make sense for them. We had to develop direct marketing to reach the communities where they are.

When we go into a community, you can get 100-200 people and about 90% are our targeted customers. We sign them up and they pay with mobile money. If not, we send them messages in local languages with crop and fertilizer tips.

Q: Where have you expanded to since that initial roll-out?

A: We're in Togo, Benin, Cote d'Ivoire and we're going into Kenya, Rwanda, Uganda and Tanzania. We'd like to be global because it doesn't make sense just to be understanding drought in Kenya without looking at somewhere like Peru. There's different seasonalities north and south of the equator and it's good for risk management to be collecting revenues in a number of different places.

Q: How many policy holders do you have and what are they paying?

A: We have between 100,000-200,000 farmers but not all have bought policies from us although a significant number have. They can pay as little as one Cedi or a KS1,000 which for the Ghanaians gives cover for a few hundred Cedis and for the Kenyan a few hundred thousand shillings. We can scale the amount up and down depending on what's covered. Everyone can get a taste of the product.

Q: So what's the basis of payouts over time from the point of view of the business?

A: We strive to give farmers some kind of payment on frequent droughts over a 3-5 year timeline. Something like 3-30-40% of farmers will get something from the policy.

Q: How do you re-insure the risk you take on with the policies?

A: We work with a handful of very large asset management companies who are happy to take on risk in our countries and don't have weather risk in their portfolios. There's less risk as the portfolio gets more diversified. The capital is tied up for a season and they can do it again and again.

Q: Who are your investors?

A: Some of our investors are not public but we've raised money with convertible notes and seed rounds. Investors have included: Y Combinator, CreditEase Fintech Investment Fund, ACE & Co, Fintech Collective, Omidyar Network, Catalyst Fund and Plug and Play. We see huge untapped potential for what we're doing.

Q: If we were having the conversation in 2-3 years time, what would you be telling me?

A: We're now on our fourth continent and we've insured 100 million farming families and we've launched a crowdfunding platform to finance part of our risk. We will have US$1 billion across institutional and retail. There will also be other products for small businesses and households, especially for things like tropical storms and hurricanes. US$100 billion is lost every year in emerging markets and less than 1% is covered.

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