Insurance Technology (Insurtech) in Agriculture

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Agricultural insurtech protects agripreneurs from unavoidable losses due to crop failures, low yields, livestock deaths, and market risks. The agricultural ecosystem is highly risky with volatility, uncertainty, complexity, and ambiguities. When disasters strike, insurance steps in to salvage the situation. Farmers regularly pay insurance premiums that serve as cumulative savings to insurance companies. These serve as a buffer against losses if and when they occur. The payment is usually covered for a particular period (usually a year). Insurance is a way of sharing, and mitigating risks associated with food production to enable the farmers to maintain food production sustainability and financial stability.

Insurance has become more pivotal to global food security. In more recent years,  the effects of climate change have made the associated risks of food production escalate. Challenges like unpredictable and irregular rainfall patterns often result in floods and in some cases increased dry days, increased pests and disease infestation, reduced crop yields, water scarcity, and soil degradation.

According to the US Environmental Protection Agency, when plants absorb large amounts of ground-level ozone they experience reduced photosynthesis, slower growth, and higher sensitivity to diseases. Climate change has also been shown to increase the threat of wildfires which pose major threats to farmlands, grasslands, and rangelands.

Some years ago, I had a friend who lost his entire earthen pond fish farm to flooding. The large volume of water which was caused by continuous rainfall resulted in the subsequent collapse of the entire structure. He not only lost his capital and the investments of others in the business, but his health also suffered, and he narrowly escaped ruin. Although his farm was insured, the coverage was limited and couldn’t compensate for the scale of the disaster. Additionally, there was insufficient data to justify the extent of the loss.

Traditional insurance has therefore exhibited some bottlenecks that have limited its scope and impact. Some of them include affordability, lack of data, lack of trust, and distribution issues. These challenges have greatly limited the kind of insurance models that can meet unique and specific requirements from crop production and livestock. The expected gains from insurance in terms of food security and sustainability have therefore experienced some setbacks. One major solution to these challenges is technology. Technology isn’t just transforming how we farm, it is also contributing significantly to how we protect crops and livestock, especially in the face of increasing unexpected risks. 

Insurtech in agriculture therefore uses technology to improve insurance products and services for farmers. The use of technologies like satellite imagery, AI, and mobile apps help to precisely synchronize data on the part of the food producer and the insurer while removing all forms of distrust or distribution limitations.

Applications of Technology in Agricultural Insurtech

Technology is used in different ways in agriculture. Some prominent ones include:

1. Index insurance: It is a type of insurance that pays out based on a predetermined index, rather than on the actual crop yield. It’s a way to manage risk for farmers. These applications use satellite images and data sensors to provide real-time and projected information on weather conditions. This is because conventional crop or livestock insurance depends on direct measurement of the loss or damage suffered by the farmer. However, as observed, field loss assessment is usually costly or not feasible, especially where there are a large number of small-scale farmers or where insurance markets are undeveloped. Index insurance can therefore help farmers get automated compensation for crop damage. 
2. Mobile apps: Mobile applications connect farmers to purchase insurance, get policy updates, and access agricultural information in real time. 
3. Artificial Intelligence (AI): AI helps to analyse large amounts of data to create more accurate risk profiles and consequently live in more assured conditions.
4. Block chain: Blockchain technology provides secure and sustainable insurance distribution channels and therefore helps to improve contracts, security of information, premiums paid, and other transactions achieved online.
5. Remote sensing: Helps overcome data challenges through centralised, secure, and accessible data capture and storage mechanisms associated with indemnity insurance. Indemnity insurance in agriculture is a policy that compensates farmers for losses to their crops or livestock. The farmer pays a premium to the insurance company, and the company pays out the value of the loss. 

Benefits of Insurance Technology in Agriculture

Insurtech offers several advantages that make its processes far more efficient than traditional insurance operations.

1. More access to insurance: Insurtech can help smallholder farmers and poorer households have more access to insurance packages and utilise insurance policies. Insurtech further helps to break the barrier of the scale of agricultural operations and makes it accessible to all scales of farming operations. 
2. Faster claim payments: Insurtech ultimately reduces claim processing costs and speeds up claim payments when the risks are crystallised. 
3. Improved contracts: Insurtech provides a transparent medium to improve contracts and strengthen security and distribution channels. 
4. Reduced moral hazard: Integrating technology in insurance can reduce moral hazard by combining indemnity models with technological developments. Moral hazard is when someone behaves in a risky way after getting insurance coverage because they know the insurance will cover the cost. It is the tendency for insurance coverage to induce deliberate and risky behaviours which can lead to higher losses for the insurance company. 
5. Improved food security: Insurtech contributes significantly to enhancing and improving food security by reducing the risk of crop and livestock failure. 
6. Stimulated innovation:  It drives and encourages risk-averse farmers to adopt promising yet riskier production innovations with confidence, knowing they have the potential to achieve higher yields and increased incomes. 

Challenges of Insurtech

Some of the challenges and limitations of insurtech include; collection and analysis difficulties due to the weather-dependent nature of farming, low farmer literacy levels, limited access to technology, complex risk assessment, high administrative costs, lack of trust in insurance systems, government policy limitations and so on. 

The more accessible insurance products are to farmers and food producers, the better equipped they are to overcome these challenges by proffering solutions such as:

1. Intensify technological solutions like satellite imagery to address the variations that may result from weather.
2. Educate farmers about the use of digital platforms and customised insurance products that they may be able to adopt.
3. Provide increased access to technology through partnerships with agritech companies and/or relevant government agencies.
4. Develop smaller, more affordable insurance policies tailored to the needs of farmers that are domiciled in that community or area.
5. Create favourable regulatory environments and provide government financial incentives to promote insurtech development as a major pillar for food security. 

Conclusion

Emerging technologies like blockchain, AI, IoT sensors, and index-based insurance are transforming agricultural insurance, making it more accessible to smallholder farmers and low-income households. These innovations are helping to democratise insurance benefits across the entire food production sector. Expanding the reach of insurtech will be crucial in enhancing resilience and ensuring food security amid climate change among other agricultural challenges.