Index-based solutions could in time surpass indemnity-based agriculture insurance in Asia through the help of technology, thus offering numerous advantages to both insurers and insureds.
Speaking at the 4th Asia Agriculture Insurance Conference in Singapore yesterday, Mr Hemant Nagpal, Director, Model Product Management at RMS said one of the reasons for low agriculture insurance penetration in places like China and India is the fragmented nature of farming communities.
Approximately 87% of the world’s small farms (less than 2 hectares in size) are found in Asia, with the average size of landholdings set to decrease further due to increasing population and limited land resources. For insurers, the large number of landholdings makes it difficult to administer crop insurance policies, underwrite risks and adjust losses.
“In short, as the landholding and value of the crop decreases, inefficiencies in implementing an indemnity based product increases,” said Ms Harini Kannan, Head of Agriculture, Asia Pacific (ex China) at Swiss Re in Singapore.
In turn, index-based solutions (like weather index, yield index), become more feasible, aided by technology that allows insurers to have a granular view of risk at a farm level without the cost of collecting such data manually, said Ms Kannan.
“Technology can provide a rich source of of underwriting and loss assessment data for insurers to improve their index as well as indemnity products,” she added.
Ms Kannan believes a combination of technology, parametric and indemnity will be the way of the future in offering agriculture solutions.
However for this to happen seamlessly, all stakeholders – including farmers, (re)insurers, technology providers and local governments – have to be aligned, she said.