Crop insurance in Yemen: supporting agriculture investment

Farmers typically face unexpected loss of projected crop yields and/or sales profits due to bad weather, insect attack or other unexpected challenges. Crop insurance is a sure way to cover against such loss, and Organic Yemen (OY) is leveraging it for Yemen farmers. The policy pays farmers in the event their crops fail to yield as projected. It also helps them to accept the risks of planting, and of increasing crop production.

Banks, finance companies, and fintechs, among others, provide crop insurance. Most governments also subsidize it, and participation in crop insurance has increased in the last decade. Indeed, agricultural insurance premiums now have a wider geographic distribution, with Asia as the second largest.

Nonetheless, several factors have always limited crop insurance, especially in developing countries like Yemen. These include the need for insurance providers to visit in person to verify and assess the damage before paying claims. It is also slow and expensive for banks.

Today, however, it is possible to use weather and agriculture data to automatically detect crop damage, and pay claims without visits. While this is not yet practiced in Yemen, OY’s agriculture data and analysis skills provide the potential to leapfrog to the latest offerings.

How crop insurance supports agriculture investment in Yemen

Governments worldwide are making it part of their agricultural policies to promote agricultural investment, access to credit, and financial stability for farmers. They are making several interventions, including premium subsidies and using meteorology as enabling measures. With weather increasingly unpredictable, crop insurance is particularly necessary for farmers to cope with climate change. The proportion of crops destroyed by weather in developing countries in Asia, the Middle East and Africa, is particularly high and warrants the adoption of crop insurance.

Types of crop insurance

There are two categories, namely crop yield and crop revenue insurance. The former covers revenue loss expected from possible yield losses. Conversely, crop revenue loss protects revenue loss expected due to fluctuations in selling prices of the crop in the market. In both cases, insurance cover aids farmers in disaster recovery due to unexpected events. Different types of agricultural insurance have different characteristics out of which the farmer can choose.

For example, were it not for crop insurance cover, secured as a mandatory requirement for getting a production loan from a bank, Ahmed, a farmer in India would have had no recourse when floods shortly damaged his crops. “Because of the insurance policy, I was able to recoup up to 80% of lost production value,” he said. Like many others, Ahmed bought his crop insurance from a bank. The crop cover has enabled him to mitigate the impacts of disaster and become more financially resilient against weather hardships.

Today in most developing countries, there are several programs. These include multi-peril policies recently introduced in Brazil, insurance against hail damage, drought, and rust in Cyprus. India has recently introduced a “Failed Well Insurance” to cover boreholes and well pumps that are vulnerable to significant water table falls. Other popular covers protect farmers against several adverse weather conditions. These include drought, excessive rainfall, high temperatures, low temperatures, high wind, and/or high humidity. Measurement of the index of these is taken at weather stations around the country.

New technologies leverage agriculture data

Settling claims has been a major problem constraining crop insurance provided especially by banks. Usually, a bank agent has to visit the farm and assess the extent of damage before paying the farmer’s claim. This process takes a lot of time during which the farmer has no money and yet could be urgently in need. It is also tedious for the bank that provides crop insurance services. As well, banks find it labor-intensive since many clients have to be served, sometimes simultaneously. This increases operational costs, and in most cases, diminishes bank profits.

To counteract these constraints, current crop insurance service providers have resorted to using agricultural and weather data. With these, they assess and pay claims automatically, and are able to make smaller payments more often. This is what is now known as “Weather Based Index Insurance (WBII)”. It involves making payments based on an index rather than crop loss measurements in the field. They select the index to represent as closely as is possible, the expected crop yield loss from climatic weather changes. Another is Picture based crop insurance, a recent innovative way for delivering comprehensive and easy-to-understand crop insurance.

How picture-based crop insurance works

Generally, the new technologies benefit both the farmer and the bank that provides the crop insurance service. Presently, there is a growing number of fintech making crop insurance easier, including Understory and Euromoney.

Organic Yemen developing feasibility studies for crop insurance offerings

OY believes in turning challenges into opportunities and is leveraging its infrastructure, experience, and expertise to promote Yemen crop insurance. The availability of fintech platforms and data-powered insurance products can allow Yemen to leapfrog in this business. From having no available offerings, Yemen can jump to using the latest data analysis tools and platforms to proving efficient offerings.

With these new offerings, Ahmed will not incur transaction costs for measuring his individual losses, as is currently the case. That is why OY is currently conducting feasibility studies to develop data-powered crop insurance offerings in partnership with local banks, insurance providers, and government entities. Contact us regarding investment or donor opportunities in this sector.