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    Date submitted
  • 05-Dec-2017

OKO - SEA Climate Insurance

Abstract

Leverage climate and data science to change the way climatic insurance is built in developing countries.

Video

Additional Questions

Who is your customer?

Initially, we will use a Business 2 Business model. We will serve banks and/or insurance companies. Usually financial regulation is very strict and costly. Instead, providing the service to financial intermediaries via exclusive agreements or competition among them is a better strategy for a venture like ours. In addition, we plan to sell the weather/climate predictions to financial institutions interested in climate and weather derivatives. In the future the model may evolve to a Business 2 Customers.

What problem does this idea/product solve or what market need does it serve?

Climate change has made agricultural outcomes significantly more uncertain. And this is especially important in poorer regions, where the impacts of climate variability on agriculture have meaningful and long lasting effects in wealth, as well as in human and physical capital accumulation. Climate insurance is the mechanism to increase resilience and reduce income volatility among farmers. But low quality of historical climate data has made insurance services for smallholders farmers too costly. The cost associated to weather measurement uncertainty is called basis risk, and it is the main responsible for why out of 2.3 billion people, who rely on rain-fed agriculture, less than 3% are protected by climate insurance. In Bolivia, our pilot country, 25% of the population depends on agricultural incomes, and climate change is expected to hit particularly hard in that country. Lack of adequate climate measurement infrastructure, a prevalent feature among developing nations, has prevented climate insurance industry to emerge. Our customers, 75% of which are smallholders, currently experience altered climatic patterns affecting their crop yields with important impacts.

What attributes will make this idea/product successful? Why do you believe that those features will create success?

OKO uses data analytics along with climate science modelling to create current weather data and seasonal forecasts for climate variables (such as rainfall and temperatures) on a very regional scale. We offer a game changer solution that takes advantage of cell phone infrastructure already available on site, and with better coverage than currently available climate measurement infrastructure, along with increasing availability of remote sensing information to increase the geographic granularity of climatic risk assessment. This way we can reduce the costs associated to uncertainty in climate measurements (basis risk). Lower basis risks translate into lower costs of serving markets where current data availability renders it unfeasible. In our pilot stage, we will create and validate a model of risks assessments for droughts and floods for soybean producers in Bolivia.

Explain how you (your team) will execute to make this idea/product successful? What gives you (your team) an advantage over others already in the market or new to this market?

Our approach can be a total game changer. We seek to reduce the marginal cost of providing index-based insurance in regions where historic climatic information has poor coverage (or is not available). Our model will significantly reduce the cost associated to basis risk. The model offers long term recurring revenues but relies on initial investments. The project has an important Research and Development (R&D) component, as it relies on some of frontier developments in the fields of climate science modelling and machine learning algorithms. Our approach is the result of many years of research. The knowledge generated will be protected by IP and remain under the control of the company. Any company interested in accessing these markets will necessarily incur in similar costs, providing the first mover a significant advantage. We also have competitive advantage because the diversity of the team and partnerships we have built. One key partner is Clima Cell (www.climacell.co), a Boston-based emerging startup that exploits new technology to deliver real-time weather measurements with high geographical granularity. Clima Cell and a local telecommunications company have integrated to create this product in Bolivia. Clima Cell is planning to expand to more than 25 countries in the coming year. There are other initiatives working in the space but they are largely addressing the demand side of the problem. Insurance is an experience good, and you need to build willingness to pay over time. Companies like World Cover (in Ghana) or Micro (in Guatemala) are addressing this issue. Without addressing the cost problem, these efforts cannot scale. Our approach will abate the costs without giving up to the proven approaches to build demand.