Amid the urban sprawl and digital disruption along China’s eastern seaboard, it’s easy to forget the agrarian hinterland. Yet despite farming accounting for over 40% of China’s workforce, agricultural insurance represents just 0.6% of non-life premiums. Additionally, as the government continues to relax the one child policy, food and water security will become increasingly important and, spurred on by these pressures, rural government agencies are turning to technology in order to better meet the needs of its people.
1. Natural catastrophe management
Rural China suffers frequently from natural disasters. The worst drought in 60 years recently hit Liaoning province and state owned insurers struggled to appraise damage and settle claims, with local farmers left uncompensated in the interim. In response, provincial governments are reaching for China’s new cure all solution – WeChat.
Developed in co-operation with AgriTech start-up WeatherTech, the Typhoon Insurance Index WeChat account covers loss or damage to crops and livestock from hurricanes. However, rather than merely enabling the distribution of typhoon insurance, this initiative can also push notifications to those in the vicinity of impending hurricanes in addition to automatically calculating payouts based on information from ground stations and meteorological data. Using WeChat to counter earthquakes and hurricanes may seem odd, but it isn’t when you consider the penetration rate of mobile devices in rural China coupled with the ability to push information to users in real time.
This WeChat effort is also significant as it’s a considerable upgrade to the traditional natural catastrophe cover that focuses on government subsidised re-imbursement at the village level as opposed to on an individual basis.
Elsewhere, China United Insurance is using drones to deliver a ‘3S’ service to China’s farmers that includes remote sensing (RS), geographic information systems (GIS), and global positioning data (GPS) all of which help farmers to map crop yields, analyse soil, and enable plough guidance. Far from a pilot project, this launch is China United’s second batch of drones and has covered over 200,000 acres of drought-stricken farmland in Sichuan province to aid disaster response and damage assessment.
However, technological innovations aren’t the only efforts under way on China’s farms, biological breakthroughs are also emerging and agronomy is making a particularly significant impact on food production and rural economies. For example, rice is still the staple food for half the world’s population, but production is hampered by the fact that rice strains will die if submerged under water and 25% of the world’s rice harvest is grown in areas that experience extreme weather conditions. To address this, a team of Qingdao based biologists (lead by renowned agriculture scientist Yuan Longping) has developed flood and drought tolerant rice by genetically modifying rice strains to grow fresh shoots after a period of drought or flood.
Last year, Longping’s team reached new heights by pioneering a hybrid rice that can be cultivated in seawater. This salt-alkali-tolerant rice is designed to grow in tidal flats and China is the first to allow commercial cultivation of such genetically modified rice. In fact, if 50% of the world’s rice paddies grew hybrids such as those developed by Longping’s team, 400 to 500 million more people could be fed, a significant contribution to appease a burgeoning global population that will exceed 9 billion by 2030.
2. Crop insurance distribution
The cost of selling agricultural insurance can be high. Agents must travel to remote rural areas to issue policies and the claims process is even lengthier. Although state owned PICC currently accounts for over half of the agricultural premiums written in China, 26 insurers are now active in the sector and are catalyzing change with new products and distribution initiatives.
One early example of agricultural insurance embracing digital methods is state owned China United Insurance and An Xin Agricultural teaming up with Alibaba to distribute crop insurance on Taobao. Specifically, farmers can buy insurance on Taobao against crop failures caused by strong winds or rain. Claims are then automatically credited to their Alipay account based on meteorological data. This enables An Xin and China United to serve farmers in villages and regions without insurance agents.
Alibaba’s Ant Financial is also amping up its agricultural insurance efforts with a new Rural Services Group that circulates technical videos, articles and tips to farmers across China in addition to operating an online credit-rating service for rural provinces that will ultimately pave the way for improved financial services for rural communities. The opportunity to merge agricultural insurance with online platforms has also not gone unnoticed by Tencent. Chief Exploration Officer, David Wallerstein has said of Tencent’s interest in AgriTech: “We should have done this earlier. We’ve got the cloud. We’ve got WeChat. Millions of farmers can benefit from the merging of these two Tencent assets.”
Other online distribution efforts include An Xin Agricultural Insurance recently launched the country’s first earthquake insurance policy which is marketed to households in Sichuan province.
Ultimately, the range of climatic and farming conditions in China means a variety of crop insurance products will be required in each province. A structure whereby products are developed within each province and distributed online. Included models range from specialized mutual insurance companies with local government subsidies, to foreign commercial insurance companies with no public subsidies.
3. Product innovations
Multiple-peril crop insurance products have been overemphasised in China. MPCI products are those covering droughts, floods, frost, earthquakes and other specific risks. Farmers often enroll as a group at village level and payouts are determined on a village basis which means farmers’ yields aren’t guaranteed as such.
Now, named-peril and index-based crop products that compensate farmers more accurately and efficiently are beginning to flourish.
From blizzard and drought index insurance for goat farmers in Inner Mongolia, to high temperate coverage for crab farmers in Jiangsu and wind index insurance for rubber tree merchants in Hainan, new agri insurance products are being introduced by private insurers sensing opportunity in this historically state run sector.
It’s also worth noting Alibaba’s efforts on the product development front. Lead by its ‘Internet-plus-Agriculture’ program, Alibaba’s partnership with AGGO is providing high-horsepower combines and baling equipment to rural China through Taobao’s rural service centers that also provide support and information regarding ploughing and harvesting best practices to farmers.
Ultimately, limited access to technical services in areas such as product design, ratemaking, underwriting, and loss adjustment are hindering the state owned property insurers currently offering agricultural insurance. However private players such as An Xin Agricultural, Zhong An and Anhua Agricultural are equipping themselves with historical natcat data with local risk profiles and online distribution to enable agricultural insurers to move away from subsidising farm output and towards supporting incomes.
China’s government has subsidised agricultural insurance for a staggering 160 million farmers. But these feats on the farm have come at a cost. China uses twice as much fertiliser and pesticide per hectare than the world average, contributing to high levels of soil pollution and degradation. The fact that China suffers regularly from natural disasters only bolsters the case to embrace the automation and efficiencies promised by technology. Although the sector has overlooked relative to other industries, its size and importance will continue to attract new entrants to a sector vital to a self-sustaining China.
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