Climate and pandemic risks
Session 5: Agriculture
“The world is changing, the climate crisis is escalating, extreme weather events are increasing, and the Covid pandemic has highlighted rural communities’ extreme vulnerability to shocks and governments’ lack of preparedness,” said Matthew Shakhovskoy, Senior Advisor at ISF Advisors in Australia. “We need a new emphasis on how agri-insurance is positioned in an interconnected global food system.”
The first session on Day 2 of the ICII, moderated by Munich Re Foundation Vice Chairman Dirk Reinhard, aimed to give an overview of agriculture insurance in the post-pandemic era. ISF’s research, said Matthew, showed that globally, around 270 million smallholder farmers need agriculture insurance, meaning that around 4 out of 5 farmers lack access to insurance, with a coverage gap of 97% in Sub-Saharan Africa.
Matthew pointed to seven major areas of change in agri-insurance, including a rapidly changing context; maturing products; disruptive leadership; a data and tech revolution; more evidence showing persistent gaps; changing government attention; and a deepening finance landscape. As a result of these insights, he said, people are talking less about agri-insurance as a product market and increasingly seeing it as just one tool in a holistic approach to risk management for small-scale farmers.
After the 2004 Indian Ocean tsunami, which destroyed more than 40,000 small fishing boats on the coast of Tamil Nadu in India, it became obvious that small-scale fishing communities needed low-cost insurance. Chenthil Kumar Chellan Leelabai, Monitoring and Evaluation Manager at the Tamil Nadu Post Tsunami Sustainable Livelihood Programme (PTSLP) explained how a community-managed hybrid insurance programme came about – a unique mutual model designed specifically to cover artisanal fishers against both natural catastrophes and accidents. “Community involvement is very important,” said Chenthil. “It’s essential for penetration of the product.”
Chenthil pointed to three key takeaways from PTSLP Fishing Asset Risk Mutual Society (PFARMS): 1) strong community-based institutions can create sustainable mutual insurance models; 2) negotiation with insurance companies can result in affordable products, but mutual trust building takes time; and 3) such schemes can minimise dependence on government grants to rehabilitate livelihoods.
Eleni Vakaki, Agriculture Index Insurance Specialist at eLEAF, spoke about some of the lessons learnt from the Uganda Agricultural Insurance Scheme (UAIS), which has been running since 2016 and has recently been extended until at least 2024. UAIS is a public-private partnership (PPP) which includes 11 insurers making up the ‘Agro Consortium’. The scheme expects to cover more than 200,000 farmers by the end of 2021.
Eleni listed a number of key ingredients for success, including cooperation with the right stakeholders; government support; continuous improvement of products; awareness raising and capacity building; and bundling insurance with other services to increase uptake. But, she warned, success doesn’t come overnight. “It takes time – you learn, you grow, you find the right partners and the right way to collaborate.”
Session 6: The common stake in index insurance certification: How do quality standards help you?
“We have a lot of persistent challenges in the context of agricultural insurance,” observed session facilitator Tara Chiu, Associate Director at the Feed the Future Innovation Lab for Markets, Risk and Resilience at UC Davis. “Costs, marketing and poor product performance can be a barrier to success and scale.” But how to judge the quality of a product? “Independent, rigorous, third-party analysis can help stakeholders make better decisions.”
In this context, Tara explained, Quality Agricultural Index Insurance Certification (QUIIC) can help reassure farmers that the product they buy will “do no harm” – in other words, that they will benefit from it.
For insurers, quality certification can help improve their reputation; governments can avoid subsidising low-quality products; donors can be confident that disaster risk financing products are effective; and regulators can protect customers and iron out inconsistencies.
Hassan Bashir, Founder of Takaful Insurance of Africa Limited in Kenya – one of the countries where QUIIC is being developed – said that certification was filling a gap. “Certification has been missing so far,” he said. “There is no way of knowing whether a product has the minimum requirements. Certification will play a significant role in both livestock and crop insurance. It will definitely build confidence, and any confidence builder will have an effect on scale.” However, he added, it is uncertain who would bear the cost of certification – the insurer, the regulator or the consumer.
Regulators are interested in certification from the perspective of ‘do no harm’, said Cynthia Ayero, an Inspection Officer with the Ugandan Insurance Regulatory Authority. “We’re very interested in improving our product management, and have been working with Feed the Future MRR Innovation Lab at UC Davis to see how we can get certification for our products. We are looking to adopt this as a regulator, especially for something as sensitive as agri-insurance for smallholder farmers.”
Tom Dienya, Crops Insurance Officer with the Area Yield Index Insurance Programme in Kenya, said measuring quality would enable the government to help all farmers equally. “The government is a very strong stakeholder, and we are keen to cover all farmers with quality products,” he said. “The idea of having a quality process and parameter is very interesting for us – it will help improve the value of the products and address some of the challenges around claims payments. The farmer needs to understand the product clearly and must also understand the quality parameters.”
For donors, quality assurance matters not only to make sure farmers don’t get ripped off but to ensure taxpayers are getting good value for money. “The better the products are, the better the impact on resilience and livelihoods,” said Jennifer Cissé, Senior Research Manager at the Munich Climate Insurance Initiative, and a former USAID staffer. “That’s why quality certification is important. By identifying and certifying high-quality products, donors will be able to invest in high-quality solutions. Certification will help us to set a high standard.” However, she warned, certification can be technically complex and transparency is essential. “The certification process needs to be very clear – including being transparent about the data needs.”
“At the moment, certification is like putting your hand into a dark box,” concluded Hassan Bashir. “Quite a lot of the industry is avoiding it because they lack knowledge or understanding. The more the industry has the confidence to run with it, the better – and that will only come with understanding.”
Session 7: Will insurance be more inclusive in a post-pandemic world? Supervisory and policy perspectives
The Covid crisis poses a threat to global financial inclusion, but it also opens up opportunities for insurers, digitalisation and PPPs. According to Miles Larbey, Head of Financial Consumer Protection at the OECD, digitalisation of the financial services sector has been “supercharged” by the pandemic. Data from 80 countries collected earlier this year showed that more than half of respondents had put measures in place to support financial inclusion, including digital onboarding. Governments also expanded digital offerings, especially in low- and middle-income jurisdictions. “In many cases, government, regulators, and industries were working together,” he commented. “Where a multi-pronged approach was taken, this was likely to be more effective.”
Tomás Soley Pérez, Superintendent at Superintendencia General de Seguros in Costa Rica and Chair of the IAIS Financial Inclusion Forum, moved the discussion from the global to the national level – but his takeaway was similar. “COVID-19 was extremely important to assess financial inclusion,” he said. “In Coast Rica, one of the first lessons we learnt was digitalisation. It allowed us to have a deeper dialogue to assess and identify lessons of digitalisation so that it supports financial inclusion post-pandemic.”
Also representing the International Association of Insurance Supervisors (IAIS), Head of Implementation Manuela Zweimueller said that now that the insurance sector has proven to be resilient in the face of the pandemic, the focus is shifting to the resilience of policyholders. “Digital ID, e-filing and e-signatures will be the ‘new normal’. The pandemic has accelerated opportunities in digitalisation, and we need to make sure that consumers are treated fairly.”
Nilofer Sohail, Head of Channel Strategy at EFU Life in Pakistan, pointed out that the ICII would not be possible without digitalisation. “When it comes to digital readiness, consumers’ expectations are moving very fast, and we have a wide gap. It was wide pre-crisis, but it’s increasing. We have to change and become agile,” she warned. “One theme that is very common is the need of the customer. We have to adapt to their needs, and the pandemic has taught us that it’s more important than ever before.”
Session moderator Pascale Lamb, an Advisor at the Access to Insurance Initiative (A2ii), who hosted the session, asked panellists how insurers and regulators could help customers who struggle to transact digitally. Becoming digitally capable goes beyond financial services – it’s a key life skill which needs to be taught, said Miles Larbey. “It’s important in the financial services industry that we think about digital literacy as an adjunct to financial literacy measures. The fact that someone is digitally capable doesn’t give them some magical financial literacy.”
Session 8: Risk layering approaches to better manage climate and disaster risks in Latin America and the Caribbean (LAC)
For the final session of the day it was perhaps appropriate to discuss cocktails – how a cocktail of different disaster risk financing mechanisms can, when combined, create a whole which is greater than the sum of the parts. Risk layering, said session moderator Andrea Camargo, Risk Financing Specialist at the World Food Programme (WFP), involves combining a wide range of tools to cover a wide range of risks, from high-impact/low-frequency disaster to low-impact/high-frequency day-to-day risks. “Risk layering does not rely on one tool, but combines all available tools efficiently,” she said.
The session brought together perspectives from Latin America and the Caribbean (LAC), where climate-related extreme weather events are all too common. “Historically the Caribbean has been a hotbed of natural disasters,” observed Isaac Anthony, CEO of the Caribbean Catastrophe Risk Insurance Facility (CCRIF) – the world’s first multi-country sovereign risk facility. “The region had very limited financing to deal with the onslaught of disasters. The whole idea is to provide quick liquidity after a disaster. Parametric insurance really provides a key part of disaster risk financing – it helps countries respond to the most pressing need.”
Lena Schubmann, Programme and Policy Officer at WFP in Guatemala, saw disaster risk financing not only as key for protection in the immediate aftermath of a shock, but as an essential tool to allow people to manage their risks in the long term. “It’s about the complementarity of different tools, including financial education; community savings schemes for minor shocks; strengthening access to credit; and microinsurance products to support vulnerable smallholder producers,” she said. “We have to integrate all these different tools into a layered approach. The micro must be in line with macro-level government strategies.”
The International Federation of Red Cross and Red Crescent Societies (IFRC) is one of those pioneering a different approach through preparedness, anticipation and forecast-based financing. “Of course, building resilience at community level is crucial, but how can we use climate and risk information to help communities before a disaster happens?” asked Mathieu Destrooper, an International Delegate with IFRC. “That might be flooding in Argentina, heavy snowfall in Peru, drought in Colombia or volcanic ash fall in Central America. We need a financing trigger mechanism which pays out when an event is forecast, before it happens. Anticipatory financing needs to be up there with disaster risk reduction, climate and development financing. When I look at the disaster risk financing landscape, we need to add a component focusing on anticipatory action. All these mechanisms must go together.”
Wrapping up the session, Kathryn Milliken, Climate Change Policy Advisor at WFP, said that LAC is an interesting test bed for piloting innovative solutions which can then be rolled out across the rest of the world. Collaboration, holistic layering using different tools, and inclusivity are all key. “As we go into 2022, we’ve got to address the challenges and look at the opportunities – PPPs, digitalisation, and protection systems that allow for scalability and sustainability.”