One Acre Fund Re reinsurance fund launched at COP28 with ARC, IFC, DFC backing

A new reinsurance fund has been launched to support delivery of innovative insurance products to protect smallholder farmers in Africa, with One Acre Fund Re expected to become a source of capacity to back what will likely be largely parametric risk transfer instruments.

The initiative has been launched by One Acre Fund, a social enterprise supporting smallholder farmers across Sub-Saharan Africa, with a focus on enhancing food security and resilience to climate risks, with a goal of supporting the development of prosperous communities.

The reinsurance fund, named One Acre Fund Re, has been designed with the support and partnership of the International Finance Corporation (IFC), U.S. International Development Finance Corporation (DFC) and parametric risk transfer specialist and risk pooling entity the African Risk Capacity (ARC).

One Acre Fund Re will provide a critical financial safety net for 1 million smallholder farmers in 2024 and that figure is expected to scale steadily in future years.

The idea is to improve the insurance offering for farmers in the face of devastating impacts on crop yields.

The goal is to cover at least 4 million farmers by 2030, with a range of insurance products, backed by reinsurance from One Acre Fund Re.

One Acre Fund Re will use One Acre Fund’s on the ground presence and rigorous data gathering, to allow for the design and implementation of new insurance products with direct payouts, in a way that more effectively responds to farmer experiences.

Right now, agricultural insurance is only available in 4 out of 54 countries across Africa, and currently, only 3% of farmers have insurance coverage for their farms.

So there is an enormous opportunity to bring together capital sources and create a new risk pool specifically focused on delivering smallholder farmer specific parametric insurance and crop covers.

It’s not immediately clear how this will be structured. But we assume that African Risk Capacity (ARC) will lend its expertise in risk pooling and the design of parametric insurance, to assist in the creation and roll-out of One Acre Fund Re.

On the reinsurance capital side, it could be interesting to see if One Acre Fund might find the new reinsurance fund a way it could crowd in private capital to support the rolling out of more insurance product in years to come.

There is a significant opportunity to leverage risk pooling and risk diversification techniques, alongside the learnings of the ILS market in utilising the appetite for insurance-linked returns, to generate efficiencies in the delivery of smallholder insurance products.

Even if the reinsurance fund is donor supported, there are still significant efficiencies to be had by better structuring a system for delivery of micro-insurance in both indemnity and parametric forms.

Annie Wakanyi, Director of Global Government Partnerships, at One Acre Fund, commented, “Smallholder farmers make up one of the most climate-vulnerable populations on the planet, facing increased frequency of climate events with devastating consequences on yields and household stability. This insurance offer has the potential to provide smallholder families with a strong safety net when these events occur; yet current market failures mean that most insurance products are too expensive or too limited in coverage to support meaningful resilience. But it doesn’t have to be this way.

“Agricultural insurance can support lasting impact and resilience for small-scale farmers. With economic growth from agriculture 11 times more effective at reducing extreme poverty than any other sector in sub-Saharan Africa, One Acre Fund Re aims to support smallholder families to achieve long-term poverty reduction and resilience.”

The Netherlands Ministry of Foreign Affairs is a long-term strategic partner of One Acre Fund, working together since 2016 and it recently extended its support up till 2027.

Marchel Gerrmann, Ambassador for Business and Development Cooperation of the Netherlands, also said, “When climate shocks hit, like the devastating cyclone we saw earlier this year in Malawi, farmers have no safety nets to fall back on. They are forced to pull children from schools they can no longer pay for, take out high-interest loans, sell assets, and endure protracted hunger.

“One Acre Fund Re aims to transform the way financial entities support smallholders and all profits will be used to increase impact and decrease climate risk.”

Johannes Borchert, Global Head of Risk & Resilience at One Acre Fund, added, “We are planning to roll out One Acre Fund Re in 2024 to five out of nine country programs. From year one, it will benefit over 1m farmers across Africa. As this facility grows, we will extend our services to farmers in all our areas of operation and beyond. We believe the data, experience and underwriting capacity we bring should be extended to offer climate safety nets to as many smallholder farmers as possible.”