December 4, 2022

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Could Blockchain-Based Insurance Solve Agricultural Problems In The Philippines?

4 min read

The Philippines is one of the most typhoon-prone countries in the world, with an average of 20 events per year. Typhoons and other extreme weather events have cost the country about Php 290 million in agricultural damage over the past decade, according to the Philippine Climate Change and Food Security Analysis (CCFSA) study commissioned by the World Food Program. The recent Typhoon Paeng alone caused damage of Php 3.16 billion in the sector.

Agriculture is an important branch of the Philippine economy and accounts for about ten percent of the gross domestic product. The basis of the industry are smallholders, who usually own less than three hectares of arable land, and who lead the agricultural production. Although they are the major contributors to industry, most of these farmers live in poverty. The Philippine Statistics Agency (PSA) states that most rice farmers earned a net return of PPH 16,832 per hectare in 2020, which is just over 20% of the average capital of PPH 70,000 per hectare required to grow rice.

With limited financial resources, farmers rely heavily on credit 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 initial mortgage unpaid, farmers often raise capital through new borrowing, leaving them at high risk of debt accumulation.

“Farmer productivity has declined over the years due to insufficient support. Oftentimes, families of farmers decide to sell land for a more immediate income when there is an urgent need, and what would have been the next generation of farmers is seen doing better paying jobs,” said Mario Berta, Country Manager for the Philippines at Igloo. “In addition to these challenges, there are recurring natural disasters that severely impact farmers’ livelihoods. This requires increased initiative to mitigate the impact of disasters.”

While extreme weather conditions may not be averted, preparations can be made to ensure the agricultural sector recovers as quickly as possible. Providing crop insurance can help and will allow farmers to get back to farming after a disaster. However, the current process of insurance claims settlement takes a lot of time and requires tedious backend processing. In addition, agents must make the arduous journey of visiting farms after typhoons and manually assessing the damage to the insured’s assets. This increased processing time contributes to further income losses for farmers.

“Crop insurance needs to be automated so farmers can get their payouts sooner and get back on their feet faster,” Berta said.

Igloo is a regional insurtech with a mission to make insurance accessible and affordable for everyone through technology. It enables digital insurance underwritten by partner insurance companies and offered in partner sales channels such as e-commerce platforms and mobile wallets. Recently, Igloo Weather Index launched Insurance, its first blockchain-based parametric insurance that automates claims through a smart contract on the blockchain.

Weather Index Insurance is an innovative approach to insurance that pays out benefits for property and investment losses due to weather and catastrophic events based on a rainfall amount, the pre-determined index. The claim is paid automatically when the rain index reaches the flood or drought threshold. This eliminates the need to review claims individually, reducing transaction costs and enabling a faster claims settlement process. The business rules for claims payout, hosted on a public blockchain, help leverage the attributes of transparency, consistency, and impartiality, making the setup credible.

“We believe Weather Index Insurance is a potential product that will reduce farmers’ vulnerability to adverse weather conditions. The expected acceleration of claims processing will allow farmers to better recover from disasters and increase productivity and competitiveness,” added Berta.

However, he also recognized that in order to make blockchain-based insurance palatable to farmers, enormous challenges need to be addressed. These hurdles include the country’s low insurance penetration rate, financial inclusion and access to digital services in rural areas, among others.

“As we bring Weather Index Insurance to the Philippines, Igloo will work with organizations such as rural banks, farmer cooperatives and relevant government agencies to address these vulnerabilities and ensure the insurance solution becomes a viable option that farmers can rely on for faster recovery ‘ said Berta.

“The unprecedented pace of climate change combined with the supply chain shocks caused by COVID-19 have made it imperative to expand agricultural insurance solutions for the smallholder community. Igloo seeks to develop an integrated approach with the broader ecosystem to build farm-level resilience by focusing on product and distribution innovation,” said Raunak Mehta, co-founder and CEO of Igloo.

Weather Index insurance is available in Vietnam but plans to launch in more agricultural SEA countries such as the Philippines, Indonesia and Thailand. Igloo is currently in talks with potential partners who can underwrite and distribute the product to underserved farmers in Luzon, Visayas and Mindanao. Igloo is committed to providing insurance for all and welcomes greater collaboration with the public and private sectors to ensure the highest level of national protection.

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