Can blockchain-based insurance solve agricultural pains in the Philippines?

The Philippines is one of the most typhoon-prone countries in the world, handling an average of 20 typhoons each year. According to the Philippines Climate Change Study and Food Security Analysis (CCFSA) conducted by the World Food Programme, typhoons and other extreme weather events have cost the country nearly PHP 290 million in agricultural damages in the past decade. The recent Typhoon Paeng alone caused PHP 3.16 billion in losses to the sector.

Agriculture is a major industry in the Philippine economy, accounting for about ten percent of the GDP. At the basis of the industry are small farmers, usually owning less than three hectares of agricultural land, which are engaged in agricultural production. Despite being the major contributors to the industry, most of these farmers live in poverty. The Philippine Statistics Authority (PSA) states that most rice farmers earned a net yield per hectare of Php16,832 in 2020, which is just over 20% of the average Php70,000 per hectare of capital required to grow the rice.

With limited financial resources, farmers rely heavily on loans to raise capital for their work. This situation makes them vulnerable to losing income when crops are damaged by floods and droughts. With the initial mortgage not paid off, farmers would often raise capital through new loans, exposing them to the risk of running up debt.

“The productivity of farmers has decreased over the years due to insufficient support. Often, farming families decide to sell land for more urgent income amid pressing needs, and what would have been the next generation of farmers is seen as seeking jobs with Better salaries,” said Mario Berta, Country Director for the Philippines at Igloo. On top of these challenges, there are frequent natural disasters that greatly harm farmers’ livelihoods. This calls for an enhanced initiative that will mitigate the impact of disasters.”

While extreme weather may not be prevented, preparations can be made to ensure a faster recovery for the agriculture sector. Providing crop insurance can help farmers and enable them to start farming again after a disaster. However, the current process of settling insurance claims is time consuming and requires tedious background processing. In addition, agents have to go through the difficult journey of visiting farms in the aftermath of hurricanes and manually assessing damage to the insured’s assets. This extended processing time adds to further loss of income for farmers.

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

Igloo is a regional insurance company with a mission to make insurance available and affordable to everyone through technology. It facilitates digital insurance that is underwritten by partner insurance companies and offered in partner distribution channels such as e-commerce platforms and mobile wallets. Most recently, Igloo introduced Weather Index Insurance, the first blockchain-based border insurance that automates claims through a smart contract on the blockchain.

Weather Index Insurance is an innovative approach to providing insurance that pays interest based on the level of precipitation, a predetermined index, for loss of assets and investments resulting from weather and catastrophic events. The claim is paid automatically when the rain indicator reaches the flood or drought threshold. This eliminates the need to verify claims individually thus reducing transaction costs, and allowing for a faster claims settlement process. The business rules governing the payout of claims hosted on a public blockchain benefit from the attributes of transparency, consistency, and impartiality, making for a reliable setup.

We believe weather index insurance is a potential product that would reduce farmers’ exposure to adverse weather conditions. Berta added that the expected increase in the speed of processing claims will enable farmers to have a better chance of recovering from disasters and increase productivity and competitiveness.

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

“When we bring weather index insurance to the Philippines, Igloo will work with organizations such as rural banks, farmers’ 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 faster,” said Berta.

“The unprecedented pace of climate change combined with the supply chain shocks caused by COVID-19 have made it absolutely necessary to scale up farm insurance solutions to the smallholder farming community. Igloo attempts to offer an integrated approach with the broader ecosystem to enhance resilience at the farm level by focusing on on product innovation and distribution,” said Ronak Mehta, co-founder and CEO at Igloo.

Weather Index Insurance is available in Vietnam but is slated to be rolled out to more agriculture-dependent Southeast Asian countries such as the Philippines, Indonesia and Thailand. Igloo is currently talking to potential partners who can guarantee the product and distribute it to disadvantaged farmers in Luzon, Visayas and Mindanao. Committed to offering insurance to all, Igloo welcomes further collaboration with the public and private sectors to ensure the highest level of national protection.

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