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China In-Depth: Agritech

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Amidst rapid urbanisation along with China’s eastern sea board, it’s easy to forget its agrarian hinterland. Yet China’s farms have managed to feed its giant cities, accounting for 2/5 of the world’s population, with just a tenth of its arable land. Despite this, several patterns are spurring the government to reconsider its approach to the agricultural sector and how it provides for farmers in the event of production loss.

i) First, China’s rural regions are disproportionately affected by natural catastrophes. In 2017 alone a range of floods, typhoons, droughts and earthquakes killed 881 people and caused the relocation of 5.25 million more.

ii) Second, a changing demographic picture and food safety requirements are increasing the need to invest in modern machinery, educate farmers in modern techniques, and incentivise them to participate in group insurance schemes.

iii) Finally, a lack of data quality provided at the farm level is affecting the ability of reinsurers to develop adequate loss adjustment procedures that are increasingly needed to alleviate government subsidies for agriculture insurance.

In the face of these challenges, China is turning to a tried and tested solution – the private sector. Specifically, by encouraging public/private partnerships, embracing new technologies, and making previously restricted data about natural catastrophes and meteorological events available to private re-insurers, provincial governments are not only able to identify rural regions at risk in advance but also co-ordinate settlements and provisions in the event of a loss.

To grasp these changes, and to visualize the agricultural insurance sector today, it’s worth considering recent developments in the sector.

1. Crop Insurance

Rapid urbanisation and shifting diets have prompted China’s primarily state-owned agricultural insurers to expand their offerings to over 170 variations of crop cover. However, claims are still paid out at the village level instead of at the farm level, government subsidised premiums do not cover the total cost of production, and premium subsidies do not apply to all agricultural outputs. Recognising these shortcomings, China is using government-backed venture funds, combined with its scale, to lure the worlds leading agritechs, and several have already established operations in China. These include:

Taranis is an Israeli startup that combines high-resolution aerial imaging that uses aerial scouting and deep learning to identify potential crop issues with computer vision and AI to show farmers what’s happening in their plots down to the insect and leaf level.

Sinochem MAP integrates agricultural data from multiple sources (imaging, weather stations, in-field sensors, etc) and supplies it to China’s Agriculture Development Department, that distributes it through SMS and social media.

CropX is an Israeli agritech that combines a wireless sensor device with advanced cloud software, to help farmers boost crop yield and save water. By combining advanced analytics with sensors in the ground, CropX automatically applies the right amount of water to different parts of the same field.

CropX has been piloted in Shenzhen and will soon be expanded to rural provinces across China.

In addition to a vibrant startup scene, several public/private agritech initiatives are underway. In a recent case, Public Origin Agritech Ltd and Changping Technology Innodevelop Group came together to commercialise genetically modified (GM) corn seeds. A separate initiative is allowing farmers in China’s southern province of Guangdong to model the effect of upcoming weather in fields and different stages (seedling, flowering and growing) in growing and pest control. 

Elsewhere, Chongqing Jiaotong University is pioneering a land reclamation technique in China’s remote Inner Mongolia province. Developing a paste found naturally in local plants’ cell walls allows sand to retain water, nutrients and air, and in previously barren dessert, corn, tomatoes, sorghum and sunflowers are being produced.

The team has so far transformed 200 hectares of sand dunes into arable soil and aims to reclaim more than 13,000 hectares by next year.

Finally, enlisting the support of internet giants has always been part of addressing China’s national challenges. For example, a recent epidemic involving a maze eating caterpillar inspired WeChat to launch a pest control service. Although eradication of the caterpillar is now unlikely, the service offers pest control techniques, pest weather reports, and access to plant-protection centres, all through WeChat.

Similar efforts are underway at Alibaba through its ‘Alicountryside Business Unit’ which has amassed agricultural output data to create the ET Agricultural brain, an AI-based knowledge base to help farmers make decisions and adjust operations according to weather conditions and growing cycles.

Ultimately, as farming and food production will play a vital role in, the current combination of public/private partnerships, startups, and internet giants has proven surprisingly effective in China’s bid to provide for its rural communities.

2. Natural Disasters:

China’s suffers disproportionately from natural catastrophes. Broadly, typhoons affect the eastern coastal provinces, a vast flood-prone area is between Yellow River and Long River (or Yangtze river), and earthquakes afflict the heartland of Sichuan and Hunan province.

The worst drought in 60 years recently hit Liaoning province and state owned insurers struggled to appraise damage and settle claims, leaving local farmers left uncompensated in the interim. As loss assessments are traditionally performed by a group of surveyors that includes a government appointed agricultural expert, provincial governments are reaching for China’s new cure all solution – WeChat.

The ubiquity of WeChat has prompted several agritechs to launch WeChat official accounts in support of their offline products. One of these is a partnership between Swiss Re and Ping An to bring a parametric insurance product for typhoons through WeChat. Targeted at both individuals and enterprises across eight coastal provincial regions, this initiative covers loss or damage to crops and livestock from hurricanes. When a typhoon occurs, a user can access an inquiry page, check if the claim terms have been triggered, and submit a remote self-service claim. The system will then automatically calculate the claim amount and settle the claim within three days with a maximum payout of $2,940 per address for individuals and $7,350 per address for enterprises.

Pre-emptive typhoon alerts combined with parametric based insurance propositions have proven popular on WeChat.

Ultimately, although parametric insurance products lend themselves well to natural catastrophe occurrences, regulatory scrutiny has slowed the growth of parametric products whilst provincial governments are informed about their impact on rural communities and current agricultural policies that are subsidised at the village level. 

3. Irrigation:

Although China is faced with several resource shortages, the most urgent of these is water. Irrigation is the biggest usage of water in China, accounting for about 55% of the national total. In order to control the total water use for irrigation, improving irrigation efficiency and reducing irrigation water quota will be key for the next five to ten years.

The emergence of advanced sensors has accelerated the ability to detect whether or not the soil needs water and if the temperature is optimal for growth. And drones are also playing a role as Shenzhen-based drone developer DJI has developed a drone that it estimates could soon service that about one-third of the country’s irrigable farmland.

Tipa is an Isaeli government sponsored contract to Yunnan province made advances in a FDIS (Family Drip Irrigation Systems)

Other efforts to upgrade China’s irrigation capabilities include state owned agricultural research working with reinsurers to maintain a database, which contains extensive data on indicators such as crop production, fertiliser use and food security. It has scientists and statisticians on its staff, collaborates with academic institutions and researchers to inform policies such as the use of genetically modified crops and livestock.

Conclusion:

Although the convergence of digital insurance and agritech is an unlikely one, the fact that China is currently subsidising agricultural insurance for 160 million farmers means the arrival of new technologies and practices is already overdue. The irony is that as the contribution of agricultural output as a share of China’s GDP declines, its relative importance in terms of domestic consumption is increasing. To balance this, a range of R&D projects, public/private partnerships, and government funded startups are producing everything from drip irrigation, to hardier seeds. Innovations pioneered in technology hubs such as Israel and the US are providing access to ever more advanced irrigation and startups are actively working on soil regeneration and productivity methods.

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