Do you recall Shakespeare’s masterpiece, ‘The Merchant of Venice?’ The story is set in the 16th century “Floating City.” Although past its heyday, it is still teeming with wealthy merchants making huge gains from silk or spice trade. Antonio, one of those wealthy merchants, has defaulted on his loan because he lost his ships at sea. His moneylender, Shylock, is pursuing his debts, asking for a pound of flesh.

It was around this time that insurance as we know it was invented, developed as a mechanism particularly in response to the needs of merchants – not necessarily to protect their flesh, but to protect their wealth, in case ships were lost to pirates or storms.

From the 16th to the 21st Century

Fast forward more than 400 years, the insurance industry has expanded and evolved.

Insurance is now available to us in many forms. We are all acquainted with life, health and home insurance. Those making a living from agriculture are also familiar with crop insurance, available to safeguard against the unexpected arrival (or not) of rain.

Yet while it is more widespread, it not yet universal. Just as many people in developed countries cannot imagine life without it, it continues to be out of reach for many, including farmers in developing countries.

Take the Philippines, one of the countries I have worked closely with over the last five years. Here, only 6 and 3 percent of rice and corn farmers, respectively, are protected by insurance. Probably the Venetian merchants of yore were more protected than Filipino farmers today.

Pursuing Protection for the Most Vulnerable

The question is how do we extend coverage to those who need it most? Essentially, we need to innovate.

In the Philippines, the Government and the UN Development Programme (UNDP) are doing just this: between 2014 and 2017, we tested a form of crop insurance accessible and affordable specifically for poor farmers: weather index-based insurance, or ‘WIBI’.

Under the project, financed by the Special Climate Change Fund (SCCF) established under the UNFCCC, WIBI was delivered to more than 2,000 farmers. Put simply, instead of payments contingent on damage verification by insurance agents (often months after an event), payments were automatically made within five days of rainfall being registered as too much or too little.

This short animation explains why crop insurance has traditionally been inaccessible for such farmers, why WIBI is considered a promising alternative and what we achieved.

Not There Yet

What were the results? Some 2,413 farmers signed up for a WIBI policy. Over the course of three years, 178 of those received payouts, totaling nearly US$30,000. Importantly, the recipients received payouts within five days, proving the advantage of WIBI over traditional insurance. The fast payouts enabled them to re-start planting activities in the same cropping cycle. This is critical as most farmers take out loans to purchase seeds and fertilizers, and a bad harvest immediately puts them in debt.

Does this mean that WIBI will replace traditional insurance? I don’t think so. During implementation, we also learned about the inherent shortcomings of WIBI, the biggest of which is the fact it only covers damage related to rainfall. It does not cover pests and diseases, which rice farmers report as an equally big risks for production.

In addition, the concept of WIBI is extremely difficult for farmers to understand. While traditional insurance is pretty intuitive – any damages on a farm, once verified by an insurance agent, will be compensated, whether they are due to pests, diseases or rainfall – compensation under WIBI is determined by whether the right amount of rain falls in the various stages of a crop’s growth. Yet farmers often don’t know how many millimeters of rain are required in different stages for good harvests, creating confusion as to eligibility.

Many of us can probably empathize. I certainly cannot explain what kind of coverage I have under my health insurance.

Where to Now?

Our work with the Government of the Philippines yielded some important findings: neither WIBI nor traditional insurance has the kind of versatility to make it attractive for poor farmers; and we need to be prepared to evolve different models and means of delivering insurance.

Efforts are underway. Recent technological advancements are reducing the time-consuming payout process of traditional insurance. For example, some are testing the use of photos taken by farmers themselves with their mobile phones for verifying damages. Meanwhile, satellite images, which are becoming cheaper and more precise, are also being used to verify damages on the ground.

Our work also highlighted fundamental questions about how best to protect poor farmers. Should countries invest their finite resources in developing better insurance products as we tried to do with the Government of the Philippines? Or should the same resources be used in educating farmers for pests and disease management, or in irrigation development so that insurance is not needed in the first place? Although the concept of crop insurance is gaining currency in developing countries, these questions are hardly asked, and the conundrums remain unresolved.

Gentle Rain No Longer Drops from Heaven

Returning to ‘The Merchant of Venice.’ The finale nears when Portia makes a plea to the moneylender Shylock to show mercy:

The quality of mercy is not strained;

It droppeth as the gentle rain from heaven;

Upon the place beneath…

(Act 4, Scene 1)

In the end, Antonio is saved. He also learns that his ships returned safely.

Farmers are not so lucky. If they have to default on their loans because of bad harvests, their lives must go on. There is no Portia to make a plea for them.

World leaders meet again in Katowice, Poland, this month to agree on the rulebook for reducing greenhouse gas (GHG) emissions as promised in the landmark Paris Agreement three years ago but effective climate action does not appear to be in sight yet. As another year goes by with GHG emissions unabated, the quality of mercy seems to be strained as the gentle rain no longer drops from heaven.

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The article was written by Yusuke Taishi, Regional Technical Advisor – Climate Change Adaptation and Regional Team Leader, Global Environmental Finance Unit, UNDP Asia Pacific. A version of this article was first published on UNDP Medium on 28 November 2018.