Singaporean insurer Igloo on Thursday launched Viet Nam’s first Weather Index Insurance, a blockchain-based parametric Index Insurance product that automates insurance claims of rice farmers.

The product is a partnership between Igloo and PVI Insurance, the Vietnam Meteorological and Hydrological Administration (VNMHA), and international reinsurer SCOR.

With underwriting support from PVI and SCOR, Igloo utilises blockchain technology to develop a Weather Index Insurance that automates claims through the use of smart contracts. At an affordable premium starting from VND220,000 per hectare, with a minimum coverage area of 0.1 hectare, the product protects farmers against irregular rainfall distribution.

With rainfall data collected from VNMHA and monitored by Igloo, the parametric insurance will pay out claims calculated using pre-assigned values for losses due to weather events or natural calamities. It will also eliminate the need to individually verify claims thereby reducing transaction costs and enabling faster payouts to farmers. Having the business rules governing claims payout hosted on a public blockchain helps leverage the attributes of transparency, consistency and unbiasedness, thereby making the setup credible.

“Our Weather Index Insurance product reduces the vulnerability of rice farmers to adverse weather conditions such as flood or drought,” said Tri Nguyen, Country Manager for Vietnam at Igloo. “It allows a quicker, simpler and more objective claims settlement process and helps provide peace of mind and ease to our farmers as payouts will now be based on triggered events and publicly accessible official metrics. Having covered nearly 6,000 hectares, we are targeting to cover 50,000 hectares over the next couple of seasons in collaboration with public-private enterprises.”

The insurance is underwritten by PVI and is currently distributed via Igloo’s intermediary services platform - Ignite. International reinsurer SCOR is the reinsurer partner having demonstrated a pedigree in financial and technical capacity for weather-based insurance products worldwide. In the current phase, the insurance plan offers automated claims in eight provinces in the Mekong Delta region in southern Viet Nam.

Viet Nam is among the top five rice exporters in the world, with 95 per cent of its exports coming from the Mekong Delta region. However, food production is challenged by severe climate conditions such as floods and shifting rainfall patterns that lead to loss of yield for paddy farmers. It is estimated that a 1 per cent increase in insurance penetration helps reduce disaster recovery expenditure by almost 22 per cent. While insurance can hedge against inclement weather, it is expensive. Agri-insurance product development and distribution are impacted by low awareness among the farming community, challenging distribution economics and regulatory frameworks.

Before launching its Weather Index Insurance, Igloo in Viet Nam has successfully worked through an embedded insurance model with partners such as Loship, AhaMove, and LOTTE Finance. — VNS