Reinsurance firm Swiss Re and Vietnamese institution Agribank’s insurance arm ABIC are teaming up to help rice farmers who are unable to pay back loans due to low crop yields.
Agribank will directly insure Vietnamese farmers against bad loans due to natural problems such as floods or droughts.
The risk will then be transferred to the secondary market through reinsurance to Swiss Re and the Vietnam National Reinsurance Corporation.
Payouts will be defined by an area-yield index, an index of the amount of rice a specific area is theoretically capable of producing, based on data by Vietnam’s bureau of statistics.
“The Vietnam transaction could also benefit other Southeast Asian countries.”
“Innovate, index-based solutions like these can be more attractive than conventional insurance since they can be offered to large numbers of farmers, are transparent in structure, have low administrative costs and enable fast payouts,” says Swiss Re in a statement.
There is also a hope that the structure could spread out into other parts of Southeast Asia, as Roman Hol, head of agriculture, Asia Pacific, at Swiss Re, comments: “The Vietnam transaction, designed to efficiently manage volatility in rice production, could also benefit other Southeast Asian countries.”
Vietnam is the fifth-biggest producer of rice in the world, and the second largest exporter after Thailand, harvesting around 6 million tonnes a year.
Rice farming provides a livelihood to more than half of Vietnam’s 86 million people.