Vietnamese farmers will soon have the opportunity to share the risk of loss of rice yields caused by floods and shifting rainfall patterns thanks to weather index insurance with an affordable premium.
Regional insurtech Igloo, in partnership with PVI Insurance, the Vietnam Meteorological and Hydrological Administration (VNMHA), and international reinsurer SCOR, debuted the country’s first Weather Index Insurance – a blockchain-based parametric Index Insurance product that automates the insurance claims of rice farmers at a launch ceremony on November 24 in Hanoi.
Vietnam is among the top five rice exporters in the world, with 95 per cent of its exports coming from the Mekong Delta region. However, food production is challenged by severe climate conditions such as floods and shifting rainfall patterns that lead to a loss of yield for paddy farmers.
It is estimated that a 1 per cent increase in insurance penetration helps reduce disaster recovery expenditure by almost 22 per cent. While insurance can hedge against inclement weather, it is expensive.
Agri-insurance product development and distribution are impacted by low awareness amongst the farming community, challenging distribution economics, and regulatory frameworks.
|Farmers will be paid a maximum of VND4 million ($179) per hectare for loss caused by floods and shifting rainfall patterns. |
With underwriting support from PVI & SCOR, Igloo utilised blockchain technology to develop a Weather Index Insurance that automates claims through the use of smart contracts. At an affordable premium starting from VND220,000 ($9.50) per hectare and a minimum coverage area of 0.1ha, the product protects farmers against irregular rainfall.
With rainfall data collected from VNMHA and monitored by Igloo, the parametric insurance will pay out claims calculated using pre-assigned values for losses due to weather events or natural disasters. It will also eliminate the need to individually verify claims thereby reducing transaction costs and enabling faster payouts to farmers.
The business rules governing claim payouts being hosted on a public blockchain help leverage the attributes of transparency, consistency, and unbiasedness, making the setup credible.
“Our Weather Index Insurance product reduces the vulnerability of rice farmers to adverse weather conditions such as floods or droughts,” said Tri Nguyen, country manager for Vietnam at Igloo.
“It allows a quicker, simpler, and more objective claim settlement process and helps provide peace of mind and ease to our farmers as payouts will now be based on triggered events and publicly accessible official metrics. Having covered nearly 6,000ha we are targeting 50,000ha over the next couple of seasons in collaboration with public-private enterprises,” Nguyen said.
The insurance is underwritten by PVI Insurance, Vietnam’s top General Insurance firm, and is currently distributed via Igloo’s intermediary services platform – Ignite. International reinsurer SCOR is the reinsurer partner having demonstrated a pedigree in a financial and technical capacity for weather-based insurance products around the world. In the current phase, the insurance plan offers automated claims in eight provinces in the Mekong Delta region in Southern Vietnam.
Raunak Mehta, co-founder and CEO at Igloo said, “The unprecedented pace of climate change coupled with pandemic-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.”
“Given its high potential for scalability, we look forward to expanding this insurance solution to cover more agricultural communities and take it to other parts of Southeast Asia.”
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