Allianz Colombia has developed a new product, based on a parametric insurance policy, that would help protect the country’s farmers livelihood as well as access to credit to strengthen their financial resilience.
The parametric insurance policy would be triggered by predetermined parameters, in this case rainfall levels that endanger crops, either too much or too little rain.
The thresholds will be determined according to the crop and its location, and weather information related to the policy will be obtained in real time via satellite technology.
This “innovative new insurance and finance product is protecting family-run farms in Colombia from the worst ravages of climate change,” Aon stated.
Many small-scale producers of Colombia’s farming communities provide many parts of the world with highly demanded products such as Hass avocado and prized arabica coffee beans.
The success of these crops often rests on weather systems that have been made increasingly unpredictable by climate change.
In recent months, Colombia’s farmers have had to contend with record heat linked to the El Niño weather phenomenon and wildfires the government declared a disaster – in a country with one of the highest annual levels of rainfall in the world.
In the case of avocados and coffee, crops need a great amount of water to be successful, which means that a significant drop in rainfall can have far-reaching impacts, including decreased agricultural yields, reduced income for farming families, increased costs for producers and consumers, and ultimately food insecurity for low-income households.
Increased rainfall, meanwhile, brings its own set of risks to Colombian crops and farmers, including flooding, landslides, and soil erosion.
Esteban Delgado, Managing Director, Allianz Commercial, Colombia, said: “With almost a quarter of the Colombian population living in rural areas and making a living from cultivating the land, these perils are serious concerns. What is particularly worrying is the fact that less than 3% of the more than seven million arable hectares (over 17 million acres) in the country are insured against climatic eventualities.
“Farmers often have low incomes, and many farms are run by women – mothers who are heads of households that rely on their income. Crop failure can spell financial disaster for these families.”
Allianz ‘new parametric product, developed in close collaboration with Bancolombia and SFA Cebar, a local company specialising in solutions for Colombian agricultural businesses, aims to help protect farmer’s livelihood in the country from these perils.
“The product was the first parametric solution of its kind for Allianz in Latin America and was in development for 12 months,” says Tatiana Gaona, VP, Legal, Compliance and ESG, at Allianz Colombia.
She continued: “Internally, we collaborated with our underwriting, operations, and claims teams to define the processes, coverage details, and tools necessary to turn the idea into a viable product.
“Our ESG [environmental, social, and governance] experts, as well as legal and compliance colleagues, lent invaluable expertise in crafting wording solutions for the policies, as well as sharing their knowledge of the market and experience of social initiatives for women in agriculture, which we support through the Allianz Foundation.”
The insurance product is a tied loan, which farmers can access via an app or in person through local co-operatives. By giving this flexibility, Allianz wanted to ensure no one is excluded for lack of a digital connection.
The co-ops also provide a supportive social context in their dual role as community hubs. The relevant information for the product is provided remotely, so there is no need for insurers to make verification field visits, which saves time and costs.
In the case of a loss event, the product gives insured farmers in remote locations quicker access to capital because there is no need for a loss adjuster to visit in person.
So far, more than $1.5mn of farmers’ investments have been protected, covering over 390 hectares (964 acres) of land across 45 municipalities in Colombia.
