Parametric insurance
AREPORT released by the Food and Agriculture Organisation of the United Nations (FAO/UN) after Category 5 Tropical Cyclone (TC) Winston ravaged through Fiji in 2016 said that the estimated total cost of damages on crops and livestock were $139million.
In 2021, another Category 5 Cyclone, TC Yasa made landfall in Fiji leaving behind approximately $150m worth of agricultural damages, according to the former Agriculture Minister Dr Mahendra Reddy.
These figures, and more tell us a lot about the challenges our farmers face during severe weather conditions, especially when majority of farmers in Fiji are small-scale commercial and subsistence farmers.
Currently, Fiji is experiencing torrential rainfall that has left a lot of low-lying areas, including farms, underwater.
The question that most ask is, how to help farmers mitigate these problems?
Parametric insurance
The United Nations Capital Development Fund (UNCDF) is currently holding a two-day Pacific Parametric Insurance Technical training in Suva with representatives from local and regional insurance companies and central banks.
United Nations Representative Coordinator to Fiji, Solomon Islands, Tonga, Tuvalu, and
Vanuatu Dirk Wagener said the purpose of the training was to bring together insurance professionals from the Pacific and help them learn and understand parametric insurance.
But what is parametric insurance? UNCDF defines it as insurance “to mitigate the hardship of insured farmers/ fisherfolk / small businesses after loss of income or earning opportunity due to adverse weather conditions like excess rainfall, high wind speed, cyclones, etc”.
In simple terms, it is an insurance policy for farmers whereby they can insure their farms and claim for fast payouts through pre-agreed triggers or parameters.
Parametric insurance in Fiji
In 2021, Fiji introduced its firstever parametric-based insurance, and this was led by Sun Insurance and Tower Insurance Fiji, agriculture and farmer agencies and supported by the Pacific Insurance and Climate Adaptation Programme (PICAP).
According to UNCDF, the first parametric insurance was designed to provide coverage for losses associated with rainfall and wind damage from cyclones, while losses incurred due to tropical depressions and anything not classified as cyclone, were excluded.
However, modifications were made on the product, and it was fine-tuned with the needed restructure to meet the needs of the targeted population.
In January 2023, the heavy rainfall in the Western Division of Fiji was a trigger event that resulted in the first pay-out of over $100,000 to 559 beneficiaries through the refined insurance product. Another 454 payouts were made between February and March of the same year, with a monetary value of $101,000 for excess rainfalls.
UNCDF Lead Technical Specialist for Climate Risk Insurance and Programme Manager, PICAP Krishnan Narasimhan said their membership has grown significantly over the past three years from 1300 households in 2021 to almost 10,000 by 2023.
On a national level, the Fijian government, in October 2023, signed its first sovereign parametric insurance cover with the Pacific Catastrophe Risk Insurance Company (PCRIC) of which it is a member.
The purpose of the cover was to help ease the cost of burden of natural disasters on national budgets.
Government had set aside $2.5m for its parametric insurance and the amount was projected to increase to $7.5m over the next two years, according to its 2023-2024 budget estimates.
Accessing parametric insurance policy in Fiji
Last year, Fijian farmers finally had the option to apply individually for their insurance cover. Prior to this, parametric insurance policies were sold exclusively through farmer cooperatives, and this is still the practice in other island countries.
According to Mr Narasimhan, there are two triggers that needed to be met to be able to access the policy payout. They are heavy wind and rainfall.
“In Fiji there are two triggers, one is the tropical cyclones, which is linked to tropical cyclones Category one, two, three, four or five, based on wind speed,” Mr Narasimhan said.
“The second trigger, which is rainfall, it is measured based on five days of consecutive rainfall exceeding 350 millimetres total, not per day. You add up five days and then you see the total rainfall in that particular location over five consecutive days.
“If it has exceeded the threshold then the payment is made.”
He explained that if the triggers are not met, the payout would not be made.
“The process is, the Fiji Meteorological Services office gives the rainfall data, location wise. They have about 51, or 52 weather stations in the country and approximately 29 of them are automatic weather stations while the rest are manual.
“The data, after it is verified, is sent to our independent index monitoring agent, they plot it against each tikina (district), then they give the data to Sun Insurance or Tower Insurance company.
“Sun Insurance knows where their customers are located, district wise, because this data was captured when they were on boarded.
“Once this is known, then it is decided how much is to be paid out, whether it is 20 per cent, or 30 per cent, because it depends on the intensity of the rainfall or the tropical cyclone.”
Insuring those in the remote areas
It is rare to find those from the maritime zones, or those in the highland interiors with any kind of insurance policies. The targeted places have always been the two main islands, particularly in the urban and peri-urban areas.
But for parametric insurance, UNCDF and its partners are finding ways to change that.
Mr Narasimhan said they have started their outreach campaigns in the outer islands.
“In outer islands, for example, Tower Insurance went to Kadavu and the Lau group last year. Some of them are planning visits to Koro Island and the Mamanuca’s and Yasawa’s this year.
“So, maritime zones will also get covered. It’s not that we are deliberately making them not being covered, it has also been a question of the cost to get there. But that has now been taken care of.”
Mr Narasimhan has thanked their farmer cooperative partners such as Sugar Cane Growers Council (SCGC), Cane Farmers’ Co-operative Savings and Loans Association Ltd (CCSLA), Fiji Crop and Livestock Council (FCLC), Fiji Rice Ltd (FRL), Fiji Coconut Millers Pte. Ltd (FCML) and others for the extensive work they do on the field when it comes to parametric insurance.