After Apple, WII Introduced for PaddyJuly 22, 2020
What does an apple farmer in Jumla (Hilly region) have in common with a paddy farmer in Bardiya (Terai belt)? Despite the fact that their farmlands lie in two drastically different geographical terrains, their crops are equally vulnerable to the risk of adverse weather conditions.
Low rainfall and the consequential drought have a remarkable impact on the yield of many crops. While farmers might put in their best effort to ensure better harvest, they have no control over the weather condition.
After the introduction of Directive on Agriculture Insurance by Beema Samiti in 2013, agriculture insurance covering crops and livestock was formally launched by non-life insurance companies. The uptake of livestock insurance increased but insurance for crops didn’t gain momentum despite the provision for 75% subsidy by the Government of Nepal. The complicated insurance mechanism for crops due to the challenges in the process of administering insurance policy and the claim assessment came up as a major obstacle in the expansion of crop insurance.
To address the low uptake of crop insurance UKaid Sakchyam Access to Finance programme engaged with the insurance industry in Nepal, in 2015 to explore a potential solution. Weather Index Insurance (WII) came up as a possible solution; the low cost for administration and transparency in the claim settlement procedure of WII helped address a few issues faced by the traditional indemnity-based insurance products like the crop insurance. While the indemnity-based insurance pays the claim on the actual loss, WII pays insured farmers damage claim based on the performance of a publicly observable index such as weather conditions.
Sakchyam collaborated with Shikhar Insurance Company Limited to introduce WII in Nepal with a product for the apple farmers in the five apple farming districts in provinces 4 and 6. Shikhar and Sakchyam jointly conducted a feasibility study to understand the insurance need of the farmers. After analyzing historical weather data and production data of apple, a customized insurance product for apples was developed and launched in May 2016 by Shikhar with technical support from Sakchyam.
The WII for apple covers the risk of drought. The rainfall during April and May is critical for the apples and if the rainfall is below the agreed indicator (the agreed indicator varies in different weather stations), farmers get payouts. Hailstorm was also included as an additional rider as it is a significant threat to a high-yield apple harvest. In the four seasons after WII for apples was launched, Shikhar has issued 3,429 insurance policies which covered risk worth NPR 241 million. In the second season, claims above NPR 1 million were paid to 321 apple farmers, due to hailstorm. Shikhar had conducted a field assessment to measure the loss due to hailstorm.
Once the farmers received their claim, their trust towards WII and the insurance company increased which, in turn, boosted the uptake of the product. Two years back, Ratna Prasad Neupane, an apple farmer in Jumla had insured only 10 apple trees through WII. Last year, due to hailstorm his apple production decreased from the usual 5000 kgs to just 1,600 kgs, and he received a claim worth NPR 31,000 from Shikhar. For the next season, he insured his entire orchard.
In four seasons, Shikhar has paid claims worth NPR 13 million to more than 1,500 apple farmers for the loss caused by hailstorms. The figure indicates that the increment in the number of insured trees has been higher than the number of farmers who bought the policy. And this tendency seems to be gaining momentum each year.
Encouraged by the promising results of WII for apples, in 2019 Shikhar piloted WII for paddy in Bardiya which also covers the risk of drought. Here the indicator for the claim is rainfall below 800mm in the period from mid-June to mid-September.
This season, 13 farmers received claims since the rainfall during the cover period was only 722.39 mm. Shikar Insurance’s claim settlement was based on the data shared by the Department of Meteorology and Hydrology. The claim amount was handed over in Feb 2020 amidst an event in Gulariya in Bardia. Mayor of Gulariya Municipality, Mr Muktinath Yadav distributed NPR 355,397 as insurance claims to the farmers.
While the initial result of WII has shown promising result, the insurance industry has a long way to go to promote crop insurance. One of the major obstacles faced by the insurance industry is the lack of adequate weather station; this has hindered the expansion of WII. Also, as the effect of weather isn’t the same in the yield of different crops, WII product might not apply to all commodities.
As traditional crop insurance product has failed to gain the momentum, alternatively such as the use of satellite imagery, area yield insurance should also be explored further. Insurance companies should capitalize on the initial momentum created by WII to win the trust of farmers and expand crop insurance to a wide range of farmers throughout the country.
Text by Omkar Pandey