Parametric insurance has become popular and is being used in different sectors stated Bahaa Abdul Hussein. Apart from its use in insuring against disasters, it can also be used in agriculture. We look at how parametric insurance can be innovatively used in farming and agriculture.

In agriculture and farming, there are many risks at various stages. The primary risks come from the weather. Most farmers across the world depend on the weather for successful farming. Shortfall in rain can lead to crop failure. Excess rain or floods can lead to crop damages and severe losses. Adverse weather due to climate change has a severe impact on farming.

Weather related problems can cause serious problems especially for small farmers. Their lives are entirely dependent on the crops/produce. Failure of crops due to weather issues can affect their livelihood. It can push them into poverty and cause food insecurity. It is a particularly critical issue considering that 80% of the world’s food is produced by small farmers.

Parametric insurance can be very helpful for small farmers. It can help them get money in the event of crop failure or damages due to adverse weather. Most importantly, they get the payout instantly without having to wait for complex processes or cumbersome paperwork. The money they receive can be used for their sustenance as well as to grow more produce.

How parametric agriculture insurance works

In parametric agriculture insurance, events like excess rain and even crop performance are pre-determined. The parameters that would trigger such events are also defined. The amount the farmer would get is also decided. This ensures a system that is completely transparent.

Whenever such an event occurs, the system immediately is triggered. Payout then happens almost instantly with money reaching the farmer’s bank account. They can then use the money to manage their expenses and even use it to replant crops.

There are certain key issues involved in parametric agriculture insurance:

  • Data is the key and is needed for policy underwriting as well as claims processing. Data from different sources are used to trigger the event.
  • It is important to ensure the insurance policy is affordable for small farmers.
  • Basis risk issue needs to be addressed to ensure the farmer gets adequate payment to cover their losses.
  • Most importantly, farmers must be made aware of parametric insurance, its benefits, and how it works.

Parametric agriculture insurance can be a boon for small farmers. All stakeholders involved need to ensure availability of the best product for farmers that meet their needs. Thank you for your interest in Bahaa Abdul Hussein blogs. For more information, please visit www.bahaaabdulhussein.com.