The Philippines is one of the most typhoon-prone countries in the world, with an average of 20 occurrences per year. According to the Philippine Climate Change and Food Security Analysis (CCFSA) study commissioned by the World Food Programme, typhoons and other extreme weather events have cost the country an estimated Php290 million in agricultural damage over the past decade. The recent Typhoon Paeng alone caused Php 3.16 billion in damage to the sector.
Agriculture is a major industry in the Philippine economy, accounting for about ten percent of its gross domestic product. At the base of the industry are small farmers, who typically hold less than three hectares of farmland, who drive agricultural production. Although they are major contributors to the industry, most of these farmers live in poverty. The Philippine Statistics Authority (PSA) says most rice farmers earned a net return per hectare of Php 16,832 in 2020, just over 20% of the average capital of Php 70,000 per hectare required for rice cultivation.
With limited financial means, farmers rely heavily on loans to raise capital for their work. This situation makes them vulnerable when they lose income when crops are destroyed by floods and droughts. With their original mortgage unpaid, farmers often raise capital through new loans, putting them at high risk of accumulating debt.
“Farmers’ productivity has declined over the years due to insufficient support. Often farming families decide to sell land for more immediate income amid pressing needs and what would have been the next generation of farmers are seen as seeking better paying jobs,” said Mario Berta, Country Manager for the Philippines at Igloo. “In addition to these challenges, there are recurring natural disasters that significantly affect farmers’ livelihoods. This requires a strengthened initiative that will mitigate the impact of disasters.
Although extreme weather conditions cannot be avoided, preparations can be made to ensure the fastest recovery of the agricultural sector. The provision of crop insurance can help and enable farmers to start farming again after a disaster. However, the current insurance claims process is time consuming and requires cumbersome backend processing. On top of that, agents face the difficult journey of visiting farms in the aftermath of typhoons and manually assessing damage to insured property. This extended processing time adds up to further loss of income for farmers.
“Crop insurance needs to be automated so farmers can get their payments sooner and get back on their feet faster,” Berta said.
Igloo is a regional insurtech company whose mission is to make insurance accessible and affordable for everyone through technology. It facilitates digital insurance underwritten by partner insurance companies and offered in partner distribution channels such as e-commerce platforms and mobile wallets. Recently, Igloo introduced Weather Index Insurance, its first blockchain-based parametric insurance that automates claims via a smart contract on the blockchain.
Weather Index Insurance is an innovative approach to providing insurance that pays benefits based on a level of precipitation, the pre-determined index, for the loss of assets and investments resulting from weather and catastrophic events. The claim is automatically paid when the rain index reaches the flood or drought threshold. This eliminates the need to verify claims individually, reducing transaction costs and enabling a faster claims resolution process. The business rules governing the payment of claims hosted on a public blockchain help leverage the attributes of transparency, consistency, and fairness, thus making the setup credible.
“We believe weather-indexed insurance is a potential product that will reduce farmers’ vulnerability to adverse weather conditions. The expected increase in claims handling speed will give farmers a better chance of recovering from disasters and increase productivity and competitiveness,” Berta added.
However, he also acknowledged that there are huge challenges in making blockchain-based insurance acceptable to farmers. These obstacles include the low insurance penetration rate in the country, financial inclusion and access to digital services in rural areas, among others.
“As we bring weather insurance to the Philippines, Igloo will work with organizations such as rural banks, farmers’ cooperatives and relevant government agencies to address these issues and ensure that the insurance solution becomes a viable option on which farmers can count on faster recovery,” Berta said.
“The unprecedented pace of climate change, coupled with COVID-19-induced supply chain shocks, has made it imperative to scale up agri-insurance solutions for the smallholder farming community. Igloo tries to provide an integrated approach with the wider ecosystem to build farm-level resilience by focusing on product and distribution innovation,” said Raunak Mehta, Co-Founder and CEO of Igloo.
Weather-indexed insurance is available in Vietnam, but is expected to be rolled out in more agriculture-focused SEA countries, such as the Philippines, Indonesia and Thailand. Igloo is currently talking to potential partners who can underwrite and distribute the product to underserved farmers in Luzon, Visayas and Mindanao. Committed to providing insurance for all, Igloo welcomes increased collaboration with the public and private sectors to ensure the highest level of national protection.
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