Can blockchain-based insurance solve agricultural problems in the Philippines? -Manila Bulletin

The Philippines is one of the most typhoon-prone countries in the world, with an average of 20 incidents 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 approximately Php 290 million in agricultural damages in the past decade. The recent Typhoon Paeng alone caused Php 3.16 billion in damages to the sector.

Agriculture is an important industry in the Philippine economy, representing around ten percent of the gross domestic product. The basis of the industry is small-scale farmers, who usually have less than three hectares of farmland, and lead agricultural production. Despite being the main contributors to the industry, most of these farmers live in poverty. The Philippine Statistics Authority (PSA) states that most rice farmers earned a net return per hectare of Php 16,832 in 2020, which is slightly more than 20% of the average Php 70,000 per hectare capital required for rice farming.

With limited financial resources, farmers are heavily dependent on loans to raise capital for their work. This situation makes them vulnerable as they lose income when crops are destroyed by floods and droughts. With the original mortgage unpaid, farmers often raise capital through new loans, exposing them to a high risk of debt accumulation.

“Farmers’ productivity has declined over the years due to inadequate support. Often, families of farmers decide to sell land for more immediate income amid pressing needs, and what would have been the next generation of farmers seem to be pursuing better-paying jobs,” said Mario Berta, country manager for the Philippines at Igloo. “In in addition to these challenges, there are recurring natural disasters that significantly damage the livelihood of farmers. This requires a strengthened initiative that will mitigate the impact of disasters.”

Although extreme weather conditions may not be preventable, preparations can be made to ensure the fastest recovery for the agricultural sector. The provision of crop insurance can help and will enable farmers to restart farming after a disaster. However, the current process of settlement of insurance claims takes a lot of time and requires tedious backend processing. In addition to this, agents have to brave the arduous journey of visiting farms in the wake of typhoons and manually assessing the damage to the insured’s assets. This extended processing time contributes to further loss of income for farmers.

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

Igloo is a regional insurance company with a goal to make insurance accessible and affordable for everyone through technology. It facilitates digital insurance underwritten by partner insurers 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 through a smart contract on the blockchain.

Weather Index Insurance is an innovative approach to insurance offering that pays out benefits based on a level of rainfall, the predetermined index, for the loss of assets and investments resulting from weather and catastrophic events. The claim is paid out automatically when the rain index reaches the flood or drought threshold. This eliminates the need to individually verify claims, thereby reducing transaction costs and enabling a faster claim settlement process. The business rules that govern the payment of claims hosted on a public blockchain help leverage the properties of transparency, consistency, and impartiality, thereby making the setup credible.

“We believe that Weather Index Insurance is a potential product that will reduce farmers’ vulnerability to adverse weather conditions. The expected increase in the speed of damage management will enable farmers to have a better chance of recovering from disasters and increase productivity and competitiveness, Berta added.

However, he also acknowledged that there are huge challenges that need 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.

“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 pain points and ensure that 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 covid-19-induced supply chain shocks has made it imperative to scale up agricultural insurance solutions for the smallholder community. Igloo seeks to bring about an integrated approach with the wider ecosystem to strengthen farm-level resilience by focusing on product- and distribution innovation, says Raunak Mehta, co-founder and CEO of Igloo.

Weather Index Insurance is available in Vietnam but is set to roll out in more agriculture-driven SEA countries such as the Philippines, Indonesia and Thailand. Igloo is currently talking with potential partners who can sign and distribute the product to underserved farmers in Luzon, Visayas and Mindanao. Committed to delivering insurance for all, Igloo welcomes more collaboration with the public and private sectors to guarantee the highest level of national protection.