Shakespeare’s masterpiece The Merchant of Venice is set in the 16th century “Floating City.” Although past its heyday, as the story goes, it was still teeming with wealthy merchants making substantive gains from the silk and spice trade. Antonio, one of those wealthy merchants, defaulted on his loan after he lost his ships at sea. His moneylender, Shylock, is pursuing his debts, asking for a pound of flesh.
It was around this time that insurance, as we know it was invented, developed as a mechanism particularly in response to the needs of merchants — not necessarily to protect their flesh, but to protect their wealth, in case ships were lost to pirates or storms.
From the 16th to the 21st Century
Fast forward more than 400 years, the insurance industry has expanded and evolved.
Insurance is now available to us in many forms. We are all acquainted with life, health and home insurance. Those making a living from agriculture are also familiar with crop insurance, available to safeguard against the unexpected arrival (or not) of rain.
Yet, while it is more widespread, it is not yet universal. While many people in developed countries cannot imagine life without it, it continues to be out of reach for many, including farmers in developing countries.
Take for example the Philippines, one of the countries I have worked closely with over the last five years. Here, only six percent of rice farmers and three percent of corn farmers are protected by insurance. Even the Venetian merchants of yore were probably more protected than Filipino farmers today.
Pursuing protection for the most vulnerable
The question is, how do we extend coverage to those who need it most? Essentially, we need to innovate.
In the Philippines, the Government and UNDP are doing just this: between 2014 and 2017, we tested a form of crop insurance accessible and affordable specifically for poor farmers: weather index-based insurance (or ‘WIBI’).
Under the project, financed by the Special Climate Change Fund established under the Climate Change Convention, WIBI was delivered to more than 2,000 farmers. Put simply, instead of payments contingent on damage verification by insurance agents (often months after an event), payments were automatically made within five days of rainfall being registered as too much or too little.
Not there yet
What were the results? Some 2,413 farmers signed up for a WIBI policy. Over the course of three years, 178 of those received payouts, totaling nearly US$30,000. Importantly, the recipients received payouts within five days, proving the advantage of WIBI over traditional insurance. The fast payouts enabled them to re-start planting activities in the same cropping cycle. This is critical as most farmers take out loans to purchase seeds and fertilizers, and a bad harvest immediately puts them in debt.
Does this mean that WIBI will replace traditional insurance? Probably not. During implementation, we also learned about the inherent shortcomings of WIBI. The biggest of which is the fact that it only covers damage related to rainfall. It does not cover pests and diseases, which rice farmers report as equally big risks for production.
In addition, the concept of WIBI is extremely difficult for farmers to understand. While traditional insurance is pretty intuitive — any damages to a farm, once verified by an insurance agent, will be compensated, whether they are due to pests, diseases or rainfall. Compensation under WIBI is determined by whether the right amount of rain falls in the various stages of a crop’s growth. Yet, farmers often do not know how many millimeters of rain are required in different stages for good harvests — creating confusion as to eligibility.
Many of us can empathize. I certainly cannot explain what kind of coverage I have under my health insurance.
Where to now?
Our work with the Government of the Philippines yielded some important findings: neither WIBI nor traditional insurance has the kind of versatility to make it attractive for poor farmers; and we need to be prepared to evolve different models and means of delivering insurance.
Efforts are underway. Recent technological advancements are reducing the time-consuming payout process of traditional insurance. For example, some are testing the use of photos, taken by farmers themselves with their mobile phones, for verifying damages. Meanwhile, satellite images, which are becoming cheaper and more precise, are also being used to verify damages on the ground.
Our work also highlighted fundamental questions about how best to protect poor farmers. Should countries invest their finite resources in developing better insurance products as we tried to do with the Government of the Philippines? Or should the same resources be used in educating farmers for pests and disease management, or in irrigation development so that insurance is not needed in the first place? Although the concept of crop insurance is gaining currency in developing countries, these questions are hardly asked and problems remain unresolved.
Gentle rain no longer drops from heaven
Returning to The Merchant of Venice. The finale nears when Portia makes a plea to the moneylender Shylock to show mercy:
The quality of mercy is not strained;
It droppeth as the gentle rain from heaven;
Upon the place beneath…
(Act 4, Scene 1)
In the end, Antonio is saved. He also learns that his ships returned safely.
Farmers are not so lucky. If they have to default on their loans because of bad harvests, their lives must go on. There is no Portia to make a plea for them.
World leaders meet again this month, this time in Katowice, Poland, to agree on the implementation guidelines for reducing greenhouse gas emissions as promised in the landmark Paris Agreement three years ago; but effective climate action does not appear to be in sight yet. As another year goes by with greenhouse gas emissions unabated, the quality of mercy seems to be strained as the gentle rain no longer drops from heaven.
Text by Yusuke Taishi, Regional Technical Advisor — Climate Change Adaptation & Regional Team Leader, Global Environmental Finance Unit, UNDP Asia Pacific. Follow him on Twitter: @yusuketaishi
Photos by: UNDP Philippines/Ferdinand R. Edralinimg
The period from now until 2020 is critical to the success of the Paris Agreement. For UNDP, UN partners and the wider international community, the mission is clear: to push for countries, communities and the private sector to scale up ambition. By 2020, we want to see accelerated action on the climate targets — the Nationally Determined Contributions (NDCs) — of the Paris Agreement. Read more on: Climate 2020 — All In