Satellite-powered Agriculture Insurance: Opportunities and Regulatory Requirements

Satellite-powered Agriculture Insurance: Opportunities and Regulatory Requirements Jimmy Loro Senior Adviser Lead Expert GIZ RIICE Remote Sensing-based Information and Insurance for Crops in Emerging Economies 3 February 2015 Manila, Philippines 06/03/2015 Satellite-powered Agriculture Insurance: Opportunities and Regulatory Requirements Page 1

Contents: I. Why Index Insurance? II. Satellite-powered Index Insurance products III. Strengths, Weaknesses, Opportunities, Threats IV. Stakeholder Roles V. RIICE Philippines Experience VI. Regulation and Supervision Requirements VII.RIICE Lessons Learnt and Next Steps Page 2

Why Index Insurance? A proxy for the loss ( index ) is used for settlement No need to evaluate loss onsite before paying claims Useful for widespread and systemic losses, not useful for localized (hit-or-miss) losses Index e.g. Weather Index Insurance, Area Yield Index Insurance, Normalised Difference Vegetation Index Insurance. Page 3

Contents: I. Why Index Insurance? II. Satellite-powered Index Insurance products III. Strengths, Weaknesses, Opportunities, Threats IV. Stakeholder Roles V. RIICE Philippines Experience VI. Regulatory and Supervision Requirements VII.RIICE Lessons Learnt and Next Steps Page 4

Satellite-powered Index Insurance products Rainfall Wind Source: Munich Re Weather Protect Page 5

Satellite-powered Index Insurance products Source: FESA, Drought Insurance, Africa Page 6

From national to local scale June 26 2012 We color code the rice area for visualisation harvest scenescence peak tillering flooding water bare soil Cosmo-SkyMed data ASI distributed by e-geos, processed using MAPscape-Rice Page 7

Satellite-powered Index Insurance products Yield Estimate Site: Leyte-West, Philippines Key city in footprint: Ormoc City SAR: Jun-Oct 2012. Yield estimate: Mar 2013 Validation: May 2013. Accuracy: @ Barangay level = 85% @ Municipal level = 92% AGAINST crop cutting experiments Source: RIICE, Ormoc City, Leyte Province, The Philippines Page 8

Contents: I. Why Index Insurance? II. Satellite-powered Index Insurance products III. Strengths, Weaknesses, Opportunities, Threats IV. Stakeholder Roles V. RIICE Philippines Experience VI. Regulatory and Supervision Requirements VII.RIICE Lessons Learnt and Next Steps Page 9

Strengths, Weaknesses, Opportunities, Threats Strengths Multiple satellites No need for automatic weather stations on ground Recalibration-free Tamper-free Outreach, expansion and scale Multi-use, Multi-sector In-depth monitoring Data granularity Low moral hazard Weaknesses High start-up cost Significant initial field work Local technical expertise Insurance literacy Technical literacy Product literacy Basis Risk Opportunities Longer experience, increasing accuracy of crop model Disaster risk financing Disaster analysis, planning Developing simple products Threats Government Policy Government Sanction Regulation Historical data Product acceptability to consumers Developing simple products Climate change Page 10

Contents: I. Why Index Insurance? II. Satellite-powered Index Insurance products III. Strengths, Weaknesses, Opportunities, Threats IV.Stakeholder Roles V. RIICE Philippines Experience VI. Regulatory and Supervision Requirements VII.RIICE Lessons Learnt and Next Steps Page 11

Stakeholder Roles Data mining Product development Proof of concept Consumer protection Technical review Calibration Standards Benchmarks Development Organizations International Research Organizations Insurer Reinsurer Data mining Product development Proof of concept Pilot Testing Product review Reinsurance Insurance Regulator Government Distribution Channels Farmers Product approval Regulation Consumer protection Policy Smart subsidies Distribution Aggregation Negotiation with Insurer Final pricing Customer feedback Product review Page 12

Contents: I. Why Index Insurance? II. Satellite-powered Index Insurance products III. Strengths, Weaknesses, Opportunities, Threats IV. Stakeholder Roles V. RIICE Philippines Experience VI. Regulatory and Supervision Requirements VII.RIICE Lessons Learnt and Next Steps Page 13

Rice from optical and radar RS Page 14

Radar backscatter How do we detect rice? Different stages of the crop can be detected if images are taken through the season grain filling harvesting time Page 15

Precise Rice area, planting date and phenology near real time CSK June 12 July 12 Sept 12 Oct 12 Before land preparation Fields soaked with water Vegetative stage Harvested Page 16

How accurate is the method? Accuracy of area, yield, and damage: actual and targeted Level of detail Area RIICE products Yield Flood area Drought area Field 85% NA 90% 80% Barangay 90% 85% 95% 85% Municipality 95% 92% 98% 90% Province 98% 98% 99% 92% Area accuracy assessment requires comparison data from BAS or another source Provincial yield estimate is based only on those municipalities where we ran the model Page 17

Contents: I. Why Index Insurance? II. Satellite-powered Index Insurance products III. Strengths, Weaknesses, Opportunities, Threats IV. Stakeholder Roles V. RIICE Philippines Experience VI.Regulation and Supervision Requirements VII.RIICE Lessons Learnt and Next Steps Page 18

Regulation and Supervision Requirements Overarching Policy Framework on Agriculture Insurance Opening market to private insurance sector Government intervention (smart subsidies) Possible review of existing legislations e.g. Insurance Code Creating a Regulatory environment that supports the expansion of index insurance through the private insurance sector Definition of Index-based insurance products (on-going) Data Product development Technical capacity Financial Literacy. Technical Literacy. Market awareness Page 19

Regulation and Supervision Requirements Roles of public-private insurance entities Product development Supporting Non Cat and Cat Risks, and Reinsurance Co-insurance pools? Possible tax incentive for micro crop insurance? Page 20

Contents: I. Why Index Insurance? II. Satellite-powered Index Insurance products III. Strengths, Weaknesses, Opportunities, Threats IV. Stakeholder Roles V. RIICE Philippines Experience VI. Regulation and Supervision Requirements VII.RIICE Lessons Learnt and Next Steps Page 21

The RS ARBY Dry test: June November 2014 An as if business case simulation of a satellite-powered crop insurance product in the Philippines. Objective: Involved institutions (insurers and distribution entities) will get the opportunity to get familiar and prepare for a smooth launch/ operation of a SAR-supported insurance product The following four key processes will be tested and assessed: (1) Appropriateness of the area yield-based index insurance product pricing and design (AYII = area yield index insurance) (2) Key steps in the distribution process (3) Key steps in the claims process (4) Functionality and timeliness of SAR-based yield assessment Duration: During wet-season 2014, June November 2014. Two workshops with all involved stakeholders: start of the wet cropping season (May); end of the 2014 wet season (November). Responsibilities of the involved parties: Different organisations will take the lead on providing the relevant deliverables (see next slide). Page 22

Underlying core processes RS ARBY dry-test components Overview of timeline of the core processes Explanation The RIICE project deliverables (product, distribution, yield estimates) need to be delivered at the right time in the course of the under-lying processes (crop cycle, loan cycle etc.). January February March April May June July August September October November December Crop cycle Crop cycle 2a Loan cycle Loan cycle 1 2b Insurance product cycle 2c 2c 2c 3 3 SAR-based loss & yield monitoring RIICE Project deliverables Philippine stakeholders deliverables 1 Insurance product design and tariff 3 Sales cut off 2a Product marketing and distribution 2b Service to customer and distributor / agents 2c Claims payment process (insurer & distributor) Monitoring and yield estimates 90 day cover 120 day cover Page 23

Lessons Learnt and Next Steps RS ARBY is FEASIBLE based on the RIICE simulation RS ARBY is affordable 2.79% (DS) 5.5% (WS) on average in 6 municipalities in Leyte @ 80% coverage Product can be expanded to DA PRiSM target agrees, IF DA agrees to share yield data Micro Crop Insurance Policy Framework comprises Area Based Yield Index Insurance PIRA submits RS ARBY Policy to IC IC approves RS ARBY Policy contract Page 24

Lessons learnt and Next Steps then.. RS ARBY can be ready to be commercially pilot tested in 2015 with the participation of an Insurer, a Distribution Channel and a Reinsurer Page 25

thank you www.riice.org Page 26