An AI-enabled index-based insurance product is now available to protect South African farmers against weather related risks.
Using Internet of Things (IoT) devices, satellite data, and smart sensors, the parametric regulator-approved system triggers automatic payouts when predefined climate thresholds are met. This provides faster, fairer, and more transparent support than traditional indemnity insurance.
Supported by the South African Insurance Association (SAIA) and its members, farmers can access index-based insurance tools designed to improve climate risk management. Insurers use IoT technology to replace broad monthly rainfall indices with real-time environmental and soil moisture data. Field-level nodes, soil probes, weather stations, and satellite feeds are used to calibrate parametric triggers more precisely, reducing the gap between the index and actual loss (basis risk).
Farmers have traditionally relied on the predictability of seasons, crop cycles, and weather patterns. However, they can now operate in an increasingly unpredictable environment, facing severe droughts, erratic rainfall, and damaging wildfires. These conditions present significant challenges for managing risk, with implications not only for individual livelihoods but also for national food security and economic stability.
In 2024, to address and improve agricultural risk management, SA’s regulators approved index insurance product for weather-related risks. AI-powered tools in agri-insurance are now shifting the focus from indemnity to building resilience and prevention.
“Index insurance can be a very powerful tool in empowering small-scale farmers to increase their resilience to weather shocks such as droughts or floods, while also encouraging investments in productivity that, in good years, create a pathway to prosperity,” says Pamela Ramagaga, General Manager of Insurance Risks at SAIA.
“Although adoption has been slow, there is clear appetite within the market. We believe that with scaled government partnership, this product can achieve the scale needed to truly transform agricultural insurance and unlock its full potential for South African farmers.”
“The regulatory green light is a landmark step, enabling insurers to offer targeted, transparent, and timely responses to climate risks faced by our farmers.”
Almost three years ago, Santam was SAIA’s representative to test soil moisture deficit (drought) grain crop index-based insurance through the Regulatory Sandbox (RSB), which is an Intergovernmental Fintech Working Group (IFWG) at the Financial Sector Conduct Authority (FSCA) offices. Since then, Santam is one of the insurers who has been successful in its application to the Prudential Authority (PA) to underwrite weather-based index insurance.
Traditional indemnity insurance requires complex and costly individual loss assessments that are often delayed when farmers need support the most. Parametric (index-based) insurance provides a streamlined offering with payment based on the occurrence of specific, predefined events, like objective weather parameters, such as rainfall measured at specific stations over a set period, rather than individual farm losses.
When the index falls below or exceeds an agreed threshold, such as insufficient rainfall during a critical growing phase, an automatic payout is triggered. This translates into benefits such as quick payouts, lower and flexible premiums, and transparent, indexed reporting in risk assessments.
In the face of increasing climate uncertainty, SAIA has supported bringing these products to market, piloting solutions and advocating for the necessary framework that would protect agricultural productivity. De-risking agriculture encourages investment, supports emerging smallholder farmers as they enter commercial markets, and fosters financial inclusion by introducing formal financial risk management tools to previously underserved rural communities.
The initiative is a public-private partnership aimed at strengthening agricultural resilience and improving risk management by protecting farmers from climate and biosecurity risks.
“The escalating climate risks facing our agricultural sector demand innovative and accessible risk transfer mechanisms,” says Ramagaga. “Index-based insurance represents a breakthrough for building resilience among smallholder and emerging farmers. SAIA is committed to fostering the partnerships and enabling environment needed to scale these solutions effectively.”
To foster inclusion and economic stability in rural communities, SAIA has engaged with the Department of Agriculture, Land Reform, and Rural Development (DALRRD) to pilot broader implementation of scaling insurance products and advocating for essential premium subsidies for small-scale farmers.
The government subsidy of insurance premiums, up to 75% for small-scale farmers and 25% for commercial farmers, enhances the sustainable uptake of drought insurance. This facilitates broader coverage across various agricultural segments. Subsidies enhance resilience, safeguard livelihoods, and reinforce long-term food security.
“The future of agriculture in South Africa will not be built on large-scale estates alone,” said John Steenhuisen, minister of agriculture, in a recent address to the Black Business Council. “It will be built on thousands of smaller farms, co-operatives, and family enterprises that, with the proper support, can feed our nation and create a more just and sustainable economy.
“We intend to provide that support by weather-proofing all our farmers, ultimately investing in the stability, security, and sustainability of South Africa’s food system for generations to come.”