Improving Client Value With Weather Index Insurance:

Learning from Asia

Representative, Microinsurance Innovation Facility

Microinsurance Fellow, Philippines Crop Insurance Corporation

Mangesh Patankar

International Labour

Organization

Department of Labour and

Employment

Provincial Government of

Agusan del Norte

Philippines Crop Insurance

Corporation

Department of Science and Technology,

Caraga Region

DOST - PAGASA Department of Agriculture,

Caraga Region

Municipality of Buenavista

Municipality of RTR

Agenda

1. Agriculture and food security in Asia2. Role of index insurance3. Current index insurance market in Asia4. Client value5. Cases from Philippines, India, Sri Lanka6. Conclusions

Agriculture and food security in Asia• 55% of the world’s population stays in Asia• 60% of the population in Asia and Pacific is

dependent on Agriculture• This is equal to almost 2.2 billion people (1/3rd of

the world’s population)• But Asia has only one fifth of the world’s

agricultural land• Average agricultural landholding

– Asia: 1 to 2 ha– World: 3.7 ha

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6Multiple sources

Food insecurity hotspots in Asia-Pacific

Source: Sustainable agriculture and food security in Asia and the Pacific, ESCAP, United Nations (2009)

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Flood, cyclone and drought hazard hotspots of Asia

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6Source: Ehrhart et al (2009)

Role of Index Insurance

• A bet on a pre-defined index or event, just like normal insurance, where it is a bet on the verifiable loss

• Index is modeled in a manner so that it could reflect/estimate the actual losses

• An innovative approach of insurance as an alternative to the issues of indemnity based insurance– Index needs to be measured by a “third party”

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Benefits

• Virtually no need of pre-sales farm level inspection

• Fast processing of claims

• Lower administration costs

• Absence of adverse selection and moral hazard

• Attractive to the reinsurers – due to “third party”

• Increases potential market for an insurer in multiple folds

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Challenges

• Basis risk– Weather infrastructure– Robust models? Do they exist?

• Product research investments• Is weather the only risk?

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Challenges: Is Weather the Only Risk?

Weather risks

Other risks

Price risks

Pests, diseases

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Kazakhstan

India

Mongolia

China

ThailandVietnam

Sri Lanka

Multiple sources

Current Asian index microinsurance market

Philippines

Indonesia

Bangladesh

Livestock

Crop

Flood-meso

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Multiple sources

How Are We Scoring on Scaling Up?

Mongolia

India

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Client Value and Microinsurance

Product and process design

DemandProduct use

Impact

Source: ILO-MIF (2011)

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How to Assess it?PRODUCT

• Coverage & sum assured• Exclusions & waiting periods• Eligibility criteria• Value-added services

ACCESS• Choice and enrolment• Information & understanding• Premium payment method• Proximity

COST• Premium to client income• Premium to benefit/cost•Other fees & costs• Cost structure and controls

EXPERIENCE• Policy administration & tangibility• Claims procedures• Claims processing time• Customer care

Source: ILO-MIF (2011)

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Peculiarities with Agricultural Insurance

• Product• Is insurance itself a value added service with real value coming from loan or

other services?

• Access• Most of the enrolment is through credit linkage. Voluntary access is minimal

• Cost• Most of the traditional insurance programmes are subsidized• Even index products in the scale-up version are getting subsidies

• Experience• ‘No bad experience’ is somehow bad for insurance repurchase!• Problems of basis risk and over-fitting • One can tackle this by giving low frequency cat-product. But would

someone buy it?

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Climate Change Adaptation Project, Philippines

• Partners: Multiple parties including funding agencies like Spanish Government, UN MDG-F, implementing agencies like ILO Philippines, DTI, DOLE, Provincial government of Agusan del Norte, DOST-Caraga, DOST PAGASA, DA, PCIC, Buenavista municipality, RTR municipality

• One of the objectives: To develop and test financial safety nets for vulnerable populations

• Project area: Four municipalities of South Philippines• First step: Understanding the need through baseline

surveys, farm-value chain study and vulnerability and adaptation assessment study

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Learning about the terrain• Rainfall risks with variations on both lower and higher

sides• Few formal credit suppliers• Lack of early warning systems due to lack of weather

measuring tools

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• Limited underwriting from public insurer due to absence of organized partners

• Significant occurrences of pests/diseases

• Supportive local governments

Interventions• Due diligence of lending institutions and selecting the best for

partnerships• Creating cross-learning platform for LGU supported credit

programmes for increasing loan penetration• Capacitating insurer in developing weather index insurance

product• Providing weather insurance and life insurance linked with

agricultural loan given by the new players (facility of non-loan linked product available)

• Providing education on pest management and farming-best practices as a package with insurance

• Setting up early-warning systems for tackling with major weather catastrophes and making the weather readings available to public

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Rainfall index considerations

• Low rainfall– Low rainfall happening across the cropping period– Prolonged dry period

• Excess rainfall– Excess rainfall happening within a few days– Prolonged wet period

• Typhoon risks are almost nil in the project area• Cropping initiation date is kept flexible

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Bringing Together Local, National and Cross-Country Knowledge

PAGASA

FAO, Agriculture Officers

Office of Civil Defense,

Municipalities, Provincial

Government, BAS

Weather data

Major calamities

Crop

models

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Client Education Given With Insurance

• Pre – sales training

• Post sales – Periodic interactions with farmers by PCIC and municipal agriculturists

ModuleModule 1. Introduction to Climate Change Screening of the video prepared by ILO - CCAP Discussion on the agricultural and other risks faced by the farmers

Module 2. Introduction to insurance and weather index insurance Discussion on the insurance experience

Module 3. Introduction to the actual products Presentation and discussion

Module 4. Introduction to the farm technology Synchronous planting, integrated pest management, organic farming and their

implications to WIBI

Module 5. Game – WIBI Carabao Race

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Key Learning

• Flexible initiation date could be a useful feature• Insurance alone not sufficient• Access to a package of agricultural inputs

including:– Agricultural loan– Insurance– Pest/disease management technique training– Localized weather forecasts and current weather

• Involving local government agencies is crucial given the designing needs

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Comprehensive Agriculture Risk Management, India

• Partners: Private insurance intermediary and private insurer• Objectives: Providing package of services including financial

risk transfer facility along with weather forecasts to the farmers

• Project Area: Howrah and Kamrup, remote districts East and North East India

• Risks tackled: Variable rainfall and temperature• Interventions:

– Setting up localized weather stations– Underwriting rainfall and temperature based contracts– Setting weather forecast dissemination systems

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Key Learning

• Farmers prefer indices which closely match with the perceived major risks

• Index products should be kept modular and simpler for better demand

• To control premium, administration costs could be reduced by leveraging technology

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Delivering Index Based Crop Insurance through Cooperative Network, Sri Lanka

• Partners: Cooperative insurance company, NGOs and consultancy originated from an MFI

• Objectives: Providing financial risk transfer mechanism through weather index insurance to farmers

• Project Area: Kurunegala and Bombuwala (first phase)

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Key Learning

• Bundling insurance with credit might not work everywhere. It could raise the prices of credit and make it unaffordable to needy farmers

• For the clients to value the product, it is essential to have a strong product understanding developed among the sales-force – they should value the product first!

• Over-customization of product could be dangerous from understandability point

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Conclusions

• Enabling environment like localized weather stations

• Strong and capable field agency for designing and servicing

• Simpler and modular products• Choice of different starting dates• Leveraging technology• Insurance “+ other services” at a single point

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Questions and Answers