Solving agricultural challenges through Blockchain-based insurtech – Manila Bulletin

Agriculture is an important sector in the Philippines, employing about 30% of the country’s workforce and contributing about 9% to the country’s GDP. However, the sector has faced several challenges in recent years.

Among the major challenges facing the agricultural sector in the country is low productivity. Despite being an agricultural nation, the Philippines’ productivity is low compared to other countries in the region due to many factors, including the use of traditional farming methods, limited access to credit, and inadequate infrastructure.

Another challenge facing the agricultural sector in the Philippines is the impact of climate change. The country is prone to natural disasters, such as typhoons and droughts, which can disrupt agricultural production and cause significant damage to crops. Dealing with an average of twenty (20) typhoons in a calendar year, damages caused by these extreme weather events cost the Philippines billions in Pesos.

We know that extreme weather conditions may not be preventable, but preparations can be made in advance to ensure the fastest recovery for the agricultural sector. The provision of crop insurance can help and will enable farmers to restart farming after an accident. 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 the farmers.

Igloo is a regional insurance company with a goal to make insurance accessible and affordable for everyone through technology. With offices in Singapore, Indonesia, Thailand, Vietnam, Malaysia and the Philippines, the firm facilitates digital insurance underwritten by partner insurers and offered in partner distribution channels online: on e-commerce platforms, as well as in mobile wallets.

“We help insurance companies bring their products into the digital space; a tech enabler for insurance companies. We specialize and are leaders in what is called contextually embedded insurance,” according to Mario Berta, Philippines country manager of Igloo Insure.

Recently, Igloo introduced Weather Index Insurance, its first blockchain-based parametric insurance that automates claims through a smart contract on the blockchain.

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 in the midst of pressing needs, and what would have been the next generation of farmers seem to pursue better paying jobs. On top of 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. Crop insurance needs to be automated so that farmers can receive their payments faster and get back on their feet faster, Berta added.

Weather Index Insurance is an innovative approach to insurance offering that pays out benefits based on a rainfall level, 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 verify claims individually, 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.

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.

“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.