The Philippines is one of the most typhoon-prone countries in the world, with an average of 20 typhoons per year. According to the Philippine Climate Change and Food Security Analysis (CCFSA), commissioned by the World Food Program, typhoons and other extreme weather events have cost the country an estimated 290 million Philippine pesos in agricultural damage over the past decade. The recent Typhoon Paeng alone caused Php3.16 billion in damage to the sector.
Agriculture is the main industry of the Philippine economy, accounting for about ten percent of its gross domestic product. The industry is based on small farmers, usually owning less than three hectares of farmland, leading agricultural production. Despite being the main contributor to the industry, most of these farmers live in poverty. The Philippine Statistics Authority (PSA) says most rice farmers generated a net income per hectare of 16,832 pesos in 2020, just over 20% of the average capital of 70,000 pesos per hectare needed to grow rice. .
With limited financial resources, 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. Because their original mortgage is not paid off, farmers often raise capital through new loans, which puts them at high risk of accumulating debt.
“The productivity of farmers has declined over the years due to insufficient support. Often, farming families decide to sell land to earn more immediate income amid pressing needs, and it is believed that the next generation of farmers will be looking for higher paying jobs,” said Mario Berta, Igloo Country Manager for the Philippines. “In addition to these problems, natural disasters periodically occur, which seriously damage the livelihoods of farmers. This requires an enhanced initiative that will mitigate the consequences of catastrophes.”
While extreme weather cannot be prevented, preparations can be made for a speedy recovery in the agricultural sector. Providing crop insurance can help and enable farmers to start farming again after a disaster. However, the current claim settlement process is time consuming and requires tedious server processing. In addition, agents have to navigate the arduous journey of visiting farms after typhoons and manually assessing the damage to the insured’s assets. This increased processing time adds to the additional loss of income for farmers.
“Crop insurance needs to be automated so that farmers can get their payouts faster and get back on their feet faster,” Bertha said.
Igloo is a regional insurance technology company whose mission is to make insurance accessible to everyone through technology. This facilitates digital insurance signed by partner insurance companies and offered through partner distribution channels such as e-commerce platforms and mobile wallets. Igloo recently introduced Weather Index Insurance, its first blockchain-based parametric insurance that automates claims with a blockchain-based smart contract.
Weather index insurance is an innovative approach to insurance that pays out based on rainfall, a predetermined index, for the loss of assets and investments due to weather and catastrophic events. The claim is automatically paid when the rain index reaches the flood or drought threshold. This eliminates the need to individually verify claims, thereby reducing transaction costs and speeding up the claims resolution process. The business rules governing the payment of claims, hosted on the public blockchain, help leverage the attributes of transparency, consistency, and impartiality, thus making the setup trustworthy.
“We believe that Weather Index Insurance is a potential product that will reduce the vulnerability of farmers to adverse weather conditions. The expected increase in the speed of claims processing will give farmers a better chance of recovering from disasters and increase productivity and competitiveness,” added Berta.
However, he also acknowledged that huge challenges need to be addressed to make blockchain-based insurance acceptable to farmers. These barriers include, among others, low insurance penetration in the country, financial inclusion, and access to digital services in rural areas.
“When we introduce Weather Index insurance in the Philippines, Igloo will work with organizations such as village banks, farmer cooperatives and relevant government agencies to address these pain points and ensure that the insurance solution becomes a viable option that farmers can rely on for more speedy recovery,” Bertha said.
“The unprecedented pace of climate change, coupled with supply chain shocks caused by COVID-19, has made scaling up agricultural insurance solutions for the smallholder farming community absolutely essential. Igloo is trying to implement a holistic, broader ecosystem approach to improve sustainability at the farm level by focusing on product and distribution innovation,” said Raunak Mehta, co-founder and CEO of Igloo.
Weather index insurance is available in Vietnam, but is planned to be rolled out to agriculture-focused Southeast Asian countries such as the Philippines, Indonesia, and Thailand. Igloo is currently negotiating with potential partners who can guarantee and distribute the product to underserved farmers in Luzon, Visayas and Mindanao. In an effort to provide insurance for everyone, Igloo welcomes closer collaboration with the public and private sectors to ensure the highest level of national protection.
SUBSCRIBE TO DAILY NEWSLETTER
CLICK HERE TO REGISTER