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Pakistan is primarily an agricultural economy and with global warming and climate change, weather patterns are also changing which is adversely impacting farm yields and hence productivity. In the past few years, there are numerous examples of shifts in seasons from the usual time. Any shift has a cascading impact and with a loss in one crop cycle, the farmer becomes reluctant to have the same crop the next season.

Untimely rain and abnormally high temperatures have multiple consequences. For example, in 2019 pre-monsoon rain adversely impacted wheat harvesting, and it also affected the sowing of the next crop on the same land. Furthermore, high temperatures were one of the possible reasons for locusts’ attack on the cotton crop. In different areas, various vegetable crops were also affected by changes in seasons.

One of the major impacts of climate change is food inflation – for details read “Food inflation and climate change” published on 28th January 2020. This article advocates the need for investment in building resilience among farmers against ever-changing weather patterns – such as incorporating technology to formulate solutions that protect farmers from falling into poverty.

Parametric based insurance (takaful) is a simple and transparent concept where there is no need for surveyors for the claims to be processed. The claims triggers are based on certain events or parameters. For instance, if a particular event occurs, there is an automatic payout; considering rainfall as a parameter, if the rainfall (assumingly) exceeds 50 millimeters in a certain area, farmers of that area are covered with parametric insurance/takaful would automatically get the (claim) payout. The simple and hassle-free nature of parametric takaful makes it an attractive and sustainable solution for farmers.

The good news is that there are a few companies which are actively working in this domain. The most prominent of them is Salaam Takaful Limited in Pakistan. The company has run a pilot in Rahim Yar Khan, where excessive rainfall (flood) and locusts’ attacks were the main parameters covered. The company also has many other such pilots in the pipeline for other districts of Pakistan.

There are several other parameters that can be covered. Temperature (Heat) is one of those. For example, for a particular crop in an area, there must be an optimal range of temperature at different stages of the crop; if the average temperature on any given day (or the number of days) exceeds the optimal range, the covered farmer gets the payout.

The temperature threshold and happening of an event for a day or multiple days would depend upon a few other factors such as the nature of the crop, crop cycle, its germination, flowering or pre-harvest stage and area where the crop is cultivated. For example, if there is more heat at the germination stage for the maize crop, the yield could be lower than expected, and in such a case, based on pre-agreed factors, the claim would be automatically paid. Then in the case of cotton, the crop is more vulnerable to locusts’ attack in case of higher heat. The wind is another factor from which farmers can get protection.

There are numerous other examples where excess or no rainfall, heat variation, pest attacks, abnormal wind, etc. can adversely impact crops in different stages of a cycle. All these can be covered through parametric insurance (or takaful) solutions. The key, however, is to have sophisticated historic data for the area and crop to set parameters.

The parametric takaful model is lean and mean as there is no need for a surveyor or other shenanigans. The farmer could receive immediate and gradual claims during the cycle of the crop – in contrast with other products (such as natural calamity coverage) where the farmer gets the claim only after the crop cycle completes. However, the need of the farmer is to cover the cost at the time of the event, and parametric solutions do provide this advantage.

The need is for the government or donors to come into the domain and provide viability-gap funding for subsistence farmers. The provincial and/or federal government(s) should sit down with insurance companies interested in parametric products to let them gather data on weather, wind, rainfall, and average crop yields in numerous districts. The private sector’s role, on the other hand, is to build on the technology for having wider and more precise coverage. Last but not the least, funding from regulators (such as sandbox by SECP) and the private sector can make such user cases scalable.


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