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Making it rain for smallholder farmers: How Thomas Njeru capitalised on a gap in the agricultural insurance market

Thomas Njeru’s first 18 years were spent in Embu, on the slopes of Mount Kenya on a smallholder farm. Unknown to him, his environment was grooming him to create a solution that would tackle the challenges faced by smallholder farmers.

Take us back to the beginning.

Throughout his childhood, Njeru witnessed how agricultural calamities like drought, pests, diseases and change of weather pushed his whole village to the brink of destruction. Farming was the largest practiced economic activity in his part of the world, but unforeseen circumstances would cut off this main source of income.

While he was an actuarial science student at the University of Nairobi, he learnt that some of the calamities happened more frequently than he had thought and that he could use statistics – not only to predict them, but also to seek ways to mitigate these risks. Insurance seemed like a plausible solution.

Later, as an insurance consultant at Deloitte working with different insurance companies across Africa, Njeru realised that the traditional insurance products, distribution channels and operating models couldn’t serve the smallholder farmers since the unit economics didn’t add up.

It is this gap in the market that inspired him to form Pula, an agricultural insurance company, co-founded with Fritz Brugger and Rose Goslinga.

How did the company grow into the business it is today?

Njeru met Goslinga 10 years ago when she was working for the agricultural organisation Syngenta Foundation. Here she founded Kilimo Salama, a micro-insurance programme, in partnership with Syngenta Foundation and UAP Insurance, where Njeru was working as lead actuary at the time. They started to discuss the challenges in the insurance industry which lead to the birth of Pula in 2014.

When Pula started its operations, its motivation was to provide standard insurance products for smallholder farmers. As the company started entering the market, they realised that, in addition, they were also collecting quite useful information from these farmers.

This gave a new twist to their product, as they could use the information they gathered to advise farmers on better farming practices. This attracted farmers to their product. “Farmers immediately saw the opportunity to receive low-cost agronomic advice on farming practices via their mobile phones to increase their yields,” Njeru said.

They then realised that they could bundle the product with digital extension services, for example using satellite data to track rains, to offer more value beyond the insurance. “Our motivation has now changed from ‘providing insurance solutions to smallholder farmers’ to ‘increasing and protecting the incomes of smallholder farmers’,” he added.

The company has 611,000 users and its target is to double that to 1.2 million by the end of 2018. In Africa, Pula has served farmers in Kenya, Zambia, Rwanda, Uganda, Nigeria, Ethiopia, Tanzania and Malawi.

There must have been challenges along the way?

Selling insurance came with its hurdles due to the lack of knowledge of insurance in the rural areas. Even worse was that the few people who had experience of insurance products, did not have great stories to tell. “They probably have had their claims delayed or even rejected, leading to a negative sentiment towards the concept of insurance,” Njeru said.

He says farmers are not always keen on buying insurance, although they need it. “As human beings, they suffer from optimism bias, leading them to believe that drought or disease won’t hit this season,” Njeru explained. “We somehow go through life hoping we’ll come out of it alive despite contrary evidence. This is a typical problem in behavioural economics.”

His company then devised a way to embed the insurance product with other products that farmers wanted to purchase, such as seeds and fertilisers.

Njeru explained that farmers are given a guarantee on the seeds and fertilisers they buy. If calamities strike their farms, they are compensated in seeds and fertilisers. This in turn, gives farmers the confidence to buy more farm inputs, and that is the value proposition provided to agricultural suppliers.

Anything we can learn from his experiences?

Njeru urges budding entrepreneurs to start their businesses on the right foot and avoid shortcuts. He says most startups ignore tax and regulatory compliance topics, legalising their transactions or hiring the right people.

He also advises that business people should take time to evaluate their ventures from all angles – from the size of the target market, competitors and how to have a differentiated product. Analysing future potential for the business is also a plus when looking for investors.

However, he overlooked something in his journey that could help improve market research for other entrepreneurs. “There is importance in including social sciences, such as behavioural economics, in product development. As an actuary, I probably had a blind spot on such stuff,” he said. “I was probably only focused on the math side of things.”

Njeru’s parting shot to other businesses is to think about the target user, analyse their needs and package products and services that speak to their circumstances, before launching.