> For the complete documentation index, see [llms.txt](https://adamdavidlong.gitbook.io/lawsnap-guide-to-smart-contracts/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://adamdavidlong.gitbook.io/lawsnap-guide-to-smart-contracts/applications/smart-contract-use-cases/insurance/crop-insurance.md). # Crop Insurance ## Executive Summary * Crop insurance is insurance for farmers to help them protect against the risk of crop failure from, for example, drought or other weather events. * Crop insurance, in particular in the developing world, is a promising use case for smart contracts because * Smart Contracts can ensure that famers get [paid out much faster](/lawsnap-guide-to-smart-contracts/applications/smart-contract-use-cases/insurance/crop-insurance.md#smart-contracts-can-vastly-speed-up-payments) than with traditional insurance and * Smart Contracts can vastly reduce the cost or managing insurance, and so cut the cost to farmers * At the same time, [barriers to adoption](/lawsnap-guide-to-smart-contracts/applications/smart-contract-use-cases/insurance/crop-insurance.md#barriers-to-adoption-fo-crop-insurance) of smart contracts for insurance include (1) general distrust of crop insurance among farmers and (2) more specifically, mistrust of insurance based on remote sensing * Several [projects](/lawsnap-guide-to-smart-contracts/applications/smart-contract-use-cases/insurance/crop-insurance.md#projects-offering-smart-contract-insurance), including [Arbol](/lawsnap-guide-to-smart-contracts/people/companies/arbol.md) and [Etherisc](/lawsnap-guide-to-smart-contracts/people/companies/etherisc.md), have already launched offering smart contract crop insurance in the developing world ## Crop Insurance Overview Crop insurance is insurance designed to help protect farmers from being wiped out by drought or other weather catastrophes. At first glance crop insurance seems like it would be a hugely helpful tool to protect farmers and lift hundreds of millions out of poverty. The only problem is, everyone thinks crop insurance sounds great, except the farmers. The results, over many decades, have been disappointing. Many schemes have been tried, but to date the only way to get widespread of crop insurance is if government chips in to cover part of the cost. But, despite decades of efforts to pitch crop insurance to farmers, demand has been very low, and famers almost never buy it, unless the government chips in to cover part of the cost. Economists and other researchers have spent decades studying this problem for farmers designed to help farmers protect themselves from being wiped out by drought or other catastrophe. Crop insurance has been around for almost one hundred years, and it seems like a no brainer for farmers, so one of the big puzzles has been why farmers, in both the developed and the developing world, don't seem much to want to buy it. Governments around the world, in both the developed world and the developing world, heavily subsidize crop insurance For decades now, it's been a major goal of governments and non-governmental organizations ("NGO"s) to encourage farmers to purchase crop insurance and help close the "coverage gap" but the results have been disappointing. {% embed url="" %} My video explainer on Crop Insurance {% endembed %} ## Current challenges in the existing crop insurance market Crop Insurance seems like a no brainer for farmers. And so the puzzle is why more of them don't buy it. And in particular, one more of them, don't buy that without subject. Pretty much everywhere in the world, crop insurance is available, it's trying to put numbers on that, both in the developed world, and in and in the developing world, crop insurance, only exists because it's highly subsidized. > "In recent years the demand for microinsurance has been characterized by a ***surprisingly low take-up***, despite evidence that when insured, farmers increase investments in, and earn more from, their available opportunities." \[4] Although crop insurance has been around for over 80 years, it has never quite lived up to the hopes. Although crop insurance seems like an obvious solution to the problem of managing risk, when it comes to traditional crop insurance "adoption rates have been largely disappointing" \[[1](/lawsnap-guide-to-smart-contracts/applications/smart-contract-use-cases/insurance/crop-insurance.md#sources)] "Crop insurance programs continue to experience challenges in achieving their objective of reducing risks faced by farmers and helping them cope with income losses. In the context of India, recent experience shows that even with good intentions and reforms to support smallholders through crop insurance programs, success remains elusive." \[[2](/lawsnap-guide-to-smart-contracts/applications/smart-contract-use-cases/insurance/crop-insurance.md#sources)] In addition, "there is hardly any crop insurance scheme anywhere in the world that is not highly subsidised." and worldwide these government subsidies run close to $20 Billion per year. \[[1](/lawsnap-guide-to-smart-contracts/applications/smart-contract-use-cases/insurance/crop-insurance.md#sources)]\[[3](/lawsnap-guide-to-smart-contracts/applications/smart-contract-use-cases/insurance/crop-insurance.md#sources)] Research out of India suggests that farmers would be more likely to buy crop insurance if they could trust that payouts would be made in a timely fashion, i.e. within 6 weeks of the loss.\[[1](/lawsnap-guide-to-smart-contracts/applications/smart-contract-use-cases/insurance/crop-insurance.md#sources)] ### Barriers to adoption Researchers over the past several decades have identified several barriers to adoption of crop insurance. * delays in handling insurance claims * lack of legal and regulatory system to protect farmers from insurer malpractice * cultural barriers arising from the fact that crop insurance provides an uncertain benefit in exchange for a certain cost #### Cultural Barriers "Communicating the idea of insurance to a never before insured population is a non-trivial exercise." \[[1](/lawsnap-guide-to-smart-contracts/applications/smart-contract-use-cases/insurance/crop-insurance.md#sources)] see also \[[4](/lawsnap-guide-to-smart-contracts/applications/smart-contract-use-cases/insurance/crop-insurance.md#sources)]. ## Analysis: Can Smart Contracts Address Barriers to Adoption of Crop Insurance | | Barrier | Could Smart Contracts help | | - | ------------------------- | -------------------------- | | 1 | Delays in handling claims | Yes | | 2 | Lack of legal certainty | Yes | | 3 | Cultural barriers | Possibly | Smart Contract technology can help with two of the three barriers to adoption of crop insurance 1. Smart Contracts can vastly speed up the process of handling claims and payments 2. Smart Contracts can remove the uncertainty of getting paid, especially in countries without well-developed legal systems At the same time, smart contracts will face the same challenge that other insurance schemes face, of asking farmers to make "a certain payment for an uncertain benefit" ### Barriers to adoption of smart contract crop insurance Can smart contracts improve adoption? As noted above, if set up correctly they can certainly help with one of the biggest challenges of traditional insurance: ensuring timely payment But at the same time, they are likely to face challenges. In particular, insurance products must be presented with simplicity and transparency to generate sufficient interest among potential buyers. collecting images from space is an abstract concept to many farmers, and much evidence has shown that insurance products must be presented with simplicity and transparency to generate sufficient interest among potential buyers. ## Projects Offering Smart Contract Insurance * [Arbol](/lawsnap-guide-to-smart-contracts/people/companies/arbol.md) * [Etherisc](/lawsnap-guide-to-smart-contracts/people/companies/etherisc.md) ## Related articles [Parametric Insurance](/lawsnap-guide-to-smart-contracts/applications/smart-contract-use-cases/insurance/in-general-parametric-insurance.md) [Insurance and Smart Contracts](/lawsnap-guide-to-smart-contracts/applications/smart-contract-use-cases/insurance.md) ## Sources \[1] Ranjan Kumar Ghosh, Shweta Gupta, Vartika Singh, Patrick S. Ward, [Demand for Crop Insurance in Developing Countries: New Evidence from India](https://doi.org/10.1111/1477-9552.12403), 2020-09-29 \[2] Rajalakshmi Nirmal, Suresh Chandra Babu, [When Implementation Goes Wrong: Lessons From Crop Insurance in India](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3820704), 2021-04-19 \[3] Reyes, Celia M.; Agbon, Adrian D.; Mina, Christian D.; Gloria, Reneli Ann B., [Agricultural insurance program: Lessons from different country experiences](https://www.econstor.eu/bitstream/10419/173579/1/pidsdps1702.pdf), 2017 \[4] Elena Serfilippi, MichaelCarter, Catherine Guirkinger, [Insurance contracts when individuals “greatly value” certainty: Results from a field experiment in Burkina Faso](https://doi.org/10.1016/j.jebo.2019.07.017), 2018