Parametric Insurance Delivers First Payout to Vietnam's Coffee Farmers

Willis, a WTW business, and Global Parametrics have issued the first payout from an innovative parametric insurance policy designed to support coffee farmers in Vietnam affected by drought. The policy, placed with Bao Minh Insurance Corporation in early 2024, protects farmers' revenue from reduced yields due to insufficient rainfall during the coffee flowering season.

Using satellite data to measure rainfall levels in Vietnam's coffee-growing regions, the insurance triggers payments when precipitation falls below predefined thresholds. This approach ensures quick financial relief without requiring lengthy claims processes or on-site assessments.

The risk capacity for the payout was provided by the Natural Disaster Fund (NDF), a public-private partnership managed by Global Parametrics, a subsidiary of CelsiusPro Group. The NDF is supported by the UK government's Foreign, Commonwealth and Development Office and Germany's development bank KfW.

"It is vital for the survival of our coffee industry that the weather, market, and agricultural risks borne by farmers are shared by market participants," said Laurent Bossolasco, sustainability manager at ECOM, a major coffee merchant. "Changing rainfall patterns, droughts, and higher temperatures are part of the farming equation, and parametric insurance can be a meaningful tool for coffee producers to adapt to climate change."

The Coffee Climate Protection Insurance (CCPI) program was developed by Willis and Global Parametrics as part of the broader "De-Risk South-East Asia" initiative in collaboration with ECOM Agroindustrial Ltd, Bao Minh Insurance Corporation, and the University of Southern Queensland in Australia.

"This program supports the resilience of coffee farmers in Vietnam against the impacts of an increasingly volatile climate, giving them much-needed financial support and allowing them to recover quickly when adverse weather threatens their livelihoods," said Claire Wilkinson, managing director of alternative risk transfer solutions at Willis.

Angus Kirk, chief executive of Global Parametrics, said, "Many of these farmers operate on a small scale with limited financial resources, which constrains their ability to cope with the impact of deviations in rainfall and temperature patterns on their crops."

Vietnam, the world's second-largest coffee producer, depends heavily on coffee exports. However, production remains vulnerable to shifting weather patterns. This risk transfer solution provides a financial safety net, helping farmers sustain their operations even during periods of drought.