Could Blockchain-based Insurance Solve Agricultural Problems in the Philippines?

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The Philippines is one of the most typhoon-prone countries in the world, dealing with an average of 20 occurrences 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 last decade. The recent typhoon Paeng alone caused Php 3.16 billion in damages to the sector.

Agriculture is a major industry in the Philippine economy, representing about ten percent of its gross domestic product. At the groundwork of the industry are small-scale farmers, usually holding less than three hectares of farmland, leading 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 got a net return per hectare of Php 16,832 in 2020, which is a little more than 20% of the average Php 70,000 per hectare capital required for rice farming.

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,” shared Mario Berta, Country Manager for the Philippines at Igloo. “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.”

While extreme weather conditions may not be prevented, preparations can be made 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.

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

Making Insurance Accessible

Igloo is a regional insurtech firm with a mission to make insurance accessible and affordable for all through technology. It facilitates digital insurance underwritten by partner insurance companies 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 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.

“We believe that Weather Index Insurance is a potential product that will reduce the vulnerability of farmers to adverse weather conditions. The expected increase in the speed of claims processing will enable farmers to have a better chance of recovery from catastrophes and increase productivity and competitiveness,” added Berta.

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.

“When we bring Weather Index Insurance to the Philippines, Igloo will work with organizations such as rural banks, farmer’s 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 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,” shared 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 sector to guarantee the highest level of national protection.

About Igloo

Igloo is the first full-stack insurtech firm to emerge from Singapore. It has offices in Singapore, Indonesia, Thailand, The Philippines, Vietnam, and Malaysia and tech centers in India and China. With a mission of making insurance accessible for all, the firm leverages big data, real-time risk assessment, and end-to-end automated claims management to create B2B2C insurance solutions for platform companies and insurance companies. Igloo’s insurance solutions enable companies to eliminate their exposure to operational risk, create new revenue streams, optimise and enhance existing products and services. Igloo has partnered with over 55 well-known brand names across the markets in various verticals, including insurance, telecommunications, e-commerce, hospitality, health tech, and financial services.