Can blockchain technology be used to provide objective and affordable insurance to poor farmers?
Agriculture is well known for being a volatile industry; with both capricious economic and geographical climates posing multiple threats to today’s farmers, many of whom, as a result, struggle to make ends meet. The paucity of accessible and affordable insurance has meant that farmers in poorer areas of the world have been well and truly at the mercy of mother earth. So for those who farm in harsh climates, a drought can be life threatening, not only for the crops and livestock which they farm, but also for the farmers and their families.
This is where companies like WorldCover come in; they have developed “smart contracts” using distributed ledger technology (blockchain) to simplify the insurance process. As mentioned in our previous article “Do you know about M-Pesa? You should” the vast majority of WorldCover´s target market is already sending and receiving money via mobile payment services, so this has provided these companies with the necessary infrastructure for automated blockchain based insurance technology.
Despite the technology underpinning WorldCover being really quite complicated (blockchain technology and machine learning), their product is amazingly simple; a crucial quality when doing business in rural areas where literacy levels are extremely poor. Essentially WorldCover is able to cut through the notoriously bureaucratic insurance claim system by ensuring insurance payments are automatically triggered once certain conditions are met, therefore increasing efficiency and eliminating fraudulent requests. Using high-resolution satellite imaging WorldCover is able to analyse rainfall in order to objectively determine compensation; for example, a farmer with limited literacy can understand that if there is no rainfall for 1 week, he will receive an automatic payment. By leveraging advanced technology, WorldCover is capable of providing premiums at a comparatively low-cost, which, like simplicity, is an essential part of their business model.
As it stands, WordCover only offers drought insurance, and therefore focuses exclusively on rainfall although they have announced plans to expand into crop disease, which usually correlates directly with poor weather conditions.
In order to further increase affordability, the company is also looking into a premium sharing scheme, where farmers can spread the cost of insurance to include large producers and multinationals.
There are other similar ventures being set up worldwide with the goal of also using blockchain technology to increase the efficiency and inclusion of agricultural insurance; Etherisc, a company that has built a platform for decentralized insurance applications and that aims to “use blockchain technology to help make the purchase and sale of insurance more efficient… and democratize access to reinsurance investments,” has partnered with Aon and Oxfam to develop a blockchain crop insurance system in Sri Lanka.
India – (un) Fertile Ground for an Insurance Revolution
The Pradhan Mantri Fasal Bima Yojana (PMFBY); India’s ostensibly revolutionary crop insurance scheme was launched in 2016 with great excitement, but the programme has been far from a success story.
Under the scheme, farmers were required to pay only 2% of the premium expenses, with the rest being absorbed in equal measure by the central and state governments. Whilst the uptake was by no means a failure with more that 56 million people signing up for the scheme between 2016 and 2017, (although this figure saw a drop of 16% in the 2017-18 period to 48.8 million) there have been nationwide complaints about the efficacy of the programme. The main cause of the grievances being that farmers’ insurance payments are often delayed, with some having to wait up to 18 months for payment. This not only poses a problem on a personal scale; for the farmers and their families, but also for Indian agriculture, as a lack of confidence in short term future prospects will inhibit long term investment, therefore stagnating the industry.
India has been targeted as a prime candidate for parametric insurance, as the idea is already there; it just needs better implementation…