Insuring against Rural Water Risk in Africa

Community management of handpumps has been the accepted mode of thinking for rural water supply over three decades in Africa. The approach underpins the hundreds of millions of US dollars invested each year to fix broken handpumps and install new ones. With four out of five people without safe and reliable water living in rural areas the need is great, particularly as rural people tend to be poorer and be more vulnerable to increasing climate variability. However, despite billions invested in rural handpumps one in three handpumps do not work in rural Africa. This represents a huge wasted investment and is associated with high but avoidable health, welfare and livelihood costs. In times of austerity governments are rightly thinking harder on more sustainable solutions that provide greater value for money for taxpayers who generally foot the handpump bill.

Encouragingly, the risk of handpump breakdown bears all the hallmarks of an insurable risk. A recent technological break-through by researchers at Oxford University makes an insurance model now feasible. The researchers designed and successfully launched a smart handpump that automatically texts how often it is being used to a maintenance team ready to respond. This provides good and reliable data on a regular basis to know how handpumps are working and critically when they fail so a trained mechanic can quickly get out to repair the pump. Like any insurance model premiums are lower with more handpumps as they spread the risk across all users. Rural Africans are already used to health and livestock insurance products so this would be a natural extension.

What is not clear is how much users would pay and what level of maintenance service they would want. Handpumps are used by often over a hundred people for drinking water and for watering livestock. Understanding people's payment preferences is critical to designing a socially-acceptable insurance product. Equally it is important to know what insurance products are available in Africa and how they are performing to consider realistic alternatives. Linking consumer demand with insurance supply will then provide a credible basis to test such a new handpump insurance product in the next phase of the research.

There is a lot of excitement and interest in the research with the project partners including the United Nations Children Foundation (UNICEF) and the global body representing mobile phone companies and operators (GSMA). The Kenyan government is also very supportive with the Water Services Regulatory Board a partner in the work as part of their mandate to deliver safe water to all Kenyan citizens. With over half of rural Kenyans lacking safe and reliable water there is a real need to address handpump performance. Kenya is not unique though. Across rural Africa similar problems are faced. If this project is successful it could help the 276 million rural Africans access safe and reliable water to make their lives and futures healthy and wealthier. That would be good news for everyone.

Our pathway to impact recognizes the inherent risks and attempt to address them in a structured and explicit fashion. First, unless an insurance mechanism is socially and culturally acceptable it will fail regardless of any actuarial wizardry. Our work builds on earlier social choice experiments in Mozambique, South Africa, Senegal and Kenya to listen to the voices of the poor using pictorial trade-off cards that can then be modeled in discrete choice models. This has proven highly effective in all previous work. Second, to achieve enduring impacts we need partners like UNICEF and GSMA with the knowledge and the mandate to drive changes at scale. Third, we aim to develop an objective and rigorous evidential platform to allow policy-makers to make justifiable decisions to shift from tired, failing but safe options. By providing new evidence and insights this project will not only challenge accepted thinking about the way rural water services are managed and financed, but could also stimulate entirely new sustainable, scalable and market-based business service delivery models.

Primary beneficiaries of this pioneering research will include (a) rural water users, particularly women and children; (b) local entrepreneurs and enterprises; and (c) governments and donors/investors.

First, it is low-income water users who suffer most from the inability to manage the financial risk inherent in community managed handpump supplies. Rural water users currently lack any mechanism to share or transfer the risk of a handpump breakdown of an unpredictable size at an unforeseen time. Though they are least able to manage risk, it is women (through lengthier collection times) and young children (through diarrhoeal diseases) who bear the brunt of having to resort to unsafe alternatives when pumps breakdown. Handpump insurance could enable water users to manage this risk by ensuring sufficient financing is always available for prompt repairs when breakdown occurs. With more than one billion rural dwellers in the developing world sourcing water from boreholes or shallow wells, the potential developmental impact of this initiative is significant.

By catalyzing the creation of a handpump insurance market, the research could prove beneficial to enterprises and entrepreneurs involved in both insurance and handpump maintenance services. Even where insurers are national or multinational in scale, the delivery channel is likely to be provided by local entities and enterprises. Increases in financing available for repair activities will boost the commercial viability of a handpump maintenance business for small scale entrepreneurs.

Governments and donors also have much to gain from an insurance mechanism that improves the financial sustainability of these systems. By increasing the functionality rates of handpump supplies, insurance models will mean governments and donors will yield a significantly greater return on their investments. The research will chart a pathway to enable governments to broaden their policy ambit beyond community management when framing rural water strategies and programmes.

Our results will be disseminated via academic papers, briefing notes and our website (oxwater.co.uk), and an electronic newsletter sent to our mailing list. This will provide a platform to communicate our findings to a large audience - in 2012 our website has received more than 10,500 page visits from 99 countries (including 20 Sub-Saharan African countries). Our work has been featured on BBC television, radio and on-line, plus numerous articles in African newspapers and online media.