Agriculture insurance
Agriculture Insurance or Insurance in general is a domain that is prone to losses due to information asymmetry. As simple as it sounds, it’s extremely difficult to eliminate this hurdle due to multiple factors. These rising numbers of fraudulent cases have jeopardised the quality of service to the genuine customers who in turn face longer time to claims settlement. Agricultural Insurance is not aloof of these problems. Let us explore how!
Agriculture Insurance differs on how losses are assessed and eventually claims are settled. Typically, a farmer pays the insurance premium before the starting of the cropping cycle and in case of any losses in the harvest, the insurance company covers for it. In an Indemnity based Insurance, an expert assesses the loss and payouts are provided post assessment based on the extent of loss occurred.
Indemnity based insurances are able to precisely cover losses; however, they are prone to problems arising from asymmetric information sharing among the stakeholders. More specifically, information on the riskiness of the agricultural production and production practices is asymmetrically distributed between farmer and insurer. This is where Blockchain Technology comes to rescue.
Blockchain is an emerging technology allowing transactions among distributed untrusted stakeholders, everything without a central authority to control the process. I.e. it is a decentralized distributed ledger system. Data points such as weather conditions, rainfall pattern, and average harvest in the area is recorded. This eliminates the chances of manipulation by either parties and makes the information more credible. As a result, the time taken to verify these claims go down and fraudulent claims are easier to spot.
Blockchain technology for Agriculture Insurance is better applicable on Index based insurance, instead of traditional Indemnity based Insurance. Here the pay-out is not triggered by the loss itself but by a measurable index, such as rainfall at a nearby weather station. However, this arrangement can also be used as a complement to the traditional service.
FocusAgritech’s Outlook for this Technology: Needs more technological advancements for mass adoption, especially in emerging economies.
Companies to Watch: Etherisc, Arbol, WorldCover
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