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ACA’s Weather Index Insurance Based on Value Chain with

Integrated Risk Management for Sustainable Farming

Jakarta April 16th 2019

Webinar - MEFIN

Jakub Nugraha

Division Head of Micro Insurance and Agriculture Insurance

PT Asuransi Central Asia - Indonesia

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Ecosystem – Integrated Risk Management – Product – Results - Challenges

Ecosystem based on Value Chain and Risk Management

Stakeholders Main Role Reduce the possibility of harvest failure by

1. Farmers

group

Executor Change behavior in managing the plant under agronomist’

guidance improve product quality ; increase yield ; get

good selling price ; payback the loan before due date

2. Seed/inputs

company

(pesticide,

fertilizer, etc.)

Good Agriculture

Practice +

dedicated

agronomist

Reduce the possibility of harvest failure = minimize attack of

pest, disease, virus + ensure each farmer to implement GAP

3. Rural bank Loan for farmer Reduce the possibility of harvest failure = ensure that farmer

has enough money to pay back the loan (NPL < 3%) ; give

confidence to RB’s management that agriculture loan is good

business as long as the ecosystem has been set up

4. Insurance Weather Index

Insurance

Disseminate the concept of risk management to each of

stake-holders ; manage the loss ratio

5. Irrigation

agency

Supply local

rainfall data

Accurate and consistent rainfall data supply that will be

disseminated to farmers

6. NGO Enabler /

aggregator

Manage that each of the stake-holders do their own roles as

have been agreed since setting up the ecosystem

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Ecosystem – Integrated Risk Management – Product – Results - Challenges

Ecosystem based on Value Chain and Integrated Risk Management

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Ecosystem – Integrated Risk Management – Product – Results - Challenges

Stakeholders Target Strategies

1. Farmers

group

a. No harvest failure

b. Increase net profit

c. Access to finance

(loan, insurance)

Access to technology:

i. Follow the instruction from agronomist for GAP, incl.

considering weather forecast for planting date

ii. Post harvest management

Access to market:

Good quality = higher selling price offered by off-taker

Access to finance:

Micro loan, micro insurance, micro investment

2. Seed/inputs

company

(pesticide,

fertilizer, etc.)

a. No harvest failure

b. Farmer’s obedience

c. More young farmer

apply smart farming

i. Intense communication with farmers groups

ii. Professional and dedicated agronomist

iii. Incentive program for the best yield

3. Rural bank Non Performing Loan is

less than 3% tightly

monitored by field staff

(Account Officer)

i. Dedicated agronomist and Account Officer

ii. Weather index insurance

iii. Intense communication with farmers + spouse

payback all loan before due date w/ incentive

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Ecosystem – Integrated Risk Management – Product – Results - Challenges

Stakeholders Target Strategies

4. Insurance a. Farmers obey GAP

b. Manage loss ratio

i. Urge farmer to plant in the most suitable week of

planting to ensure sufficient rainfall for each vegeta-

tive phase, generative phase and ripening phase

window planting week relates with the possibility of

lack of rainfall higher premium = higher possibility

of lack of rainfall and claim payment

ii. Ensure the rural bank to put 2 types of risk mitigation

cost as parts of loan component:

a) For pest and disease pesticide, herbicide, etc

b) For drought extra water pumping (water

pump rental, plastic hose, gasoline)

Ease the farmer to get extra cash quickly

should they need for extra water pumping

Reduce the possibility of harvest failure due to

lack of rain

iii. Consistency of daily rainfall data gathering from

trusted source

5. NGO a. No harvest failure

b. Each of the stake-

holders can achieve

her own target

i. Intense communication with each of PICs

ii. Education, socialization of DANA PANDAN to all

stakeholders

iii. Incentive program for the best yield

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Items Notes

1. Name of product Weather Index Insurance – Lack of Rainfall for paddy commodity

2. Location Tulungagung District, East Java Province

3. Trigger Index = the minimum level of rainfall at each growth phase to ensure

sufficient water supply for paddy hit the trigger = various

payout due to growing phase of each plant : Vegetative phase

Reproductive phase, Ripening phase

4. Insurance premium Vary from 2% TSI up to 6% TSI for one sub-district only / season

5. Underwriting factors 1. Satellite-based rainfall data for the last 35 years

2. Weather forecast for the next planting season

3. Size of pixel 5 km x 5 km

4. Types of risk mitigations

5. Types of seed

6. Soil fertility

7. Date of planting

6. Government subsidy NO government subsidy to create farmers’ entrepreneurship

7. Loan interest Loan interest rate is 5-10 % higher than government program

Ecosystem – Integrated Risk Management – Product – Results - Challenges

8. Sum insured IDR 10 million / hectare = USD 702 / hectare

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Items Notes

Real rainfall data

during Vegetative

phase

Automatic Weather Station coordinate : 108.0390833, -6.508555556S

Ecosystem – Integrated Risk Management – Product – Results - Challenges

threshold

= mm rainfall

village

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Ecosystem – Integrated Risk Management – Product – Results - Challenges

Items Ecosystem – Value Chain + Risk

Management

Non Ecosystem – No Value Added of

insurance

Variety Ciherang seed – Dec 2018 planting Ciherang seed – Dec 2018 planting

Location Alas Village, Kroya Sub-District, West Java Alas Village, Kroya Sub-District, West Java

Interest 15% per year 7% per year (government subsidy)

Insurance

Premium

USD 10.5 - USD 70.2/ha USD 2.5/ha season paid by farmer + USD

10.1 (80%) subsidy by government

Harvest Premium quality rice = USD 0.316 / kg Regular quality rice = USD 0.281 / kg

Yield 9.2 ton / ha 6.4 / ha

Net profit USD 2,907 USD 1,798

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Ecosystem – Integrated Risk Management – Product – Results - Challenges

1. Setting up the right stakeholders who has true interest, initiative, commitment for the action plan

2. Agriculture actuary expert + experience agronomist + off-takers

3. Ensure rural bank to joint the program normally take 2 planting seasons to convince, start with demo plot, dry run,

4. Reliable ground weather station

5. Farmers’ willingness to change their old habit

6. Technology = mobile apps, satellite weather data, access to internet

7. How to convince the decision makers in the company, regulators, other ministries that agriculture insurance plays more active roles:

i. Works after the accident,

ii. Contribute more before the accident prevent harvest failure risk and achieve sustainable farming scale up

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Terima kasih

Thank You

Salamat Sa Iyo

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