Index-based agricultural insurance emerged as a potential solution to the logistical challenges that have limited smallholders’ access to insurance, according to CGAP. This type of insurance calculates payouts using an index figure that is highly correlated with loss caused by an insured risk, such as a drought, flood or pests.

However, the potential of index-based agricultural insurance is far from being fully realized, and providers are exploring digital innovations that could expand access to more smallholders, CGAP says. These innovations cluster around three broad insurance applications: Macro level, Meso level and Micro level.

Over the coming years, CGAP foresees a steady rise in the application of digital technology to ease pain points in smallholder index insurance. CGAP and its partner, Pula Advisors, are contributing to this innovation process by exploring the application of satellite technology in meso-level agricultural insurance in Nigeria.