Agriculture is an important sector in the Philippines employing around 30% of the country’s labor force and contributing around 9% to the country’s GDP. However, the sector has been facing several challenges in recent years.
Among the major challenges of the agriculture sector in the country is low productivity. Despite the Philippines being an agricultural nation, its productivity is low compared to other countries in the region due to a number of factors, including the use of traditional farming methods, limited access to credit, and insufficient infrastructure.
Another challenge facing the agriculture 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 brought about by these extreme weather events cost the Philippines billions in the Peso.
We know that extreme weather conditions may not be prevented, however, preparations can be made beforehand to ensure the fastest recovery for the agriculture sector. The provision of crop insurance can help and will enable farmers to begin farming anew after a calamity. However, the current process of insurance claims settlement takes a lot of time and requires tedious backend processing. In addition to this, agents have to brave the difficult journey of visiting farms in the wake of typhoons and manually assess the damage to the insured’s assets. This extended processing time adds to further loss of income for the farmers.
Igloo is a regional insurtech firm with a mission to make insurance accessible and affordable for all through technology. With offices in Singapore, Indonesia, Thailand, Vietnam, Malaysia, and the Philippines, the firm facilitates digital insurance underwritten by partner insurance companies and offered in partner distribution channels online: on eCommerce 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 the leader in what is called contextually embedded insurance,” according to Mario Berta, Philippine 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 means, farmers heavily rely 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. With their initial mortgage unpaid, farmers often raise capital through fresh loans, exposing them to a high risk of debt accumulation.
“Farmer productivity has declined over the years due to insufficient 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 are seen to pursue better-paying jobs. On top of these challenges, there are recurring natural disasters that significantly hurt the livelihoods of farmers. This calls for a strengthened initiative that will mitigate the impact of catastrophes. Crop insurance needs to be automated so the farmers can receive their payouts sooner and get back on their feet quicker,” Berta added.
Weather Index Insurance is an innovative approach to insurance provision that pays out benefits on the basis of a rainfall level, the predetermined index, for loss of assets and investments resulting from weather and catastrophic events. The claim is automatically paid when the rain index hits the flood or drought threshold. This eliminates the need to individually verify claims thereby reducing transaction costs, and allowing for a quicker claims settlement process. The business rules governing claims payout being hosted on a public blockchain help leverage the attributes of transparency, consistency, and unbiasedness thereby making the setup credible.
However, he also recognized that there are enormous challenges needed to be addressed to make blockchain-based insurance palatable to farmers. These hurdles include the country’s low insurance penetration rate, financial inclusion, and access to digital services in rural areas, among others.
“The unprecedented pace of climate change coupled with COVID-19 induced supply chain shocks have made it absolutely necessary to scale up agri-insurance solutions for the smallholder farming community. Igloo is trying to bring forth an integrated approach with the wider ecosystem to strengthen farm-level resilience by focusing on product and distribution innovation,” said Raunak Mehta, Co-founder and CEO at Igloo.
The Weather Index Insurance is available in Vietnam but is set to roll out in more agriculture-driven SEA countries like the Philippines, Indonesia, and Thailand. Igloo is currently speaking to potential partners that can underwrite 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.