MINDANAO, Philippines (AP) — Joemar Flores, a spindly 28-year-old, gestured across his family’s farmland, nestled between a steep hill and a river, and expressed gratitude for the rice paddies in the distance.
They’re still there, producing food and an income for him, thanks in part to a novel form of insurance that is increasingly being used to help vulnerable populations build resilience to climate change.
Back in 2022, the young father of a toddler and a newborn faced ruin when heavy rains and violent winds decimated his rice crop.
“We were very discouraged,” he recalled, as he pointed to a photo of the destroyed paddies.
Flores had borrowed 30,000 Philippine pesos (a little more than $500 at today’s exchange rates) to purchase the rice seedlings and fertilizer he needed for the crops that provide his family’s livelihood. Without the harvest he wouldn’t be able to pay back the loan or have any money to replant.
Luckily for Flores, the local cooperative where he had borrowed the money had an emergency fund bolstered by the experimental insurance. The co-op was able to forgive part of the loan and extend Flores another one, which allowed him to replant.
Typically, insurance payouts after a disaster are based on the actual damages, as determined by an on-site inspection by an assessor. This usually involves a lot of paperwork, bureaucracy and waiting, sometimes for years.
But Flores’ co-op has a unique insurance policy: a Luxembourg-based company working with a local Philippines-based insurer pays policyholders based solely on the amount of rainfall and wind speed in a defined area, as measured by satellites. The policies are designed to protect against flooding, drought and typhoons, as well as heat waves.
No damage assessment or site visit is required. The payments are based purely on predetermined statistical thresholds. When a threshold is met, it triggers an automatic payment.
Recipients of the payouts, in this case the co-op, are notified in days and money is deposited directly into the co-op’s bank accounts within a week or two.
These mechanical triggers, or parameters, give the insurance product its moniker, “parametric insurance.”
The quick, straightforward payouts of these policies could encourage the use of insurance in vulnerable areas that have long lacked coverage, especially emerging markets, says Arup Kumar Chatterjee of the Asian Development Bank, which has overseen several pilot projects in the region.
“It’s a good solution,” he said.
