May 17, 2017 12:00 pm JST

Sompo Japan to release in Indonesia weather index insurance for farmers

Adaptation strategy to climate change presents business opportunities

KEN SAKAKIBARA, Nikkei staff writer

Sompo Japan Nipponkoa Insurance holds a briefing to explain its insurance products in Indonesia.

TOKYO -- Sompo Japan Nipponkoa Insurance will start selling insurance products that compensate farmers hit by drought in Indonesia as early as this autumn. 

Earlier this month, Sompo Japan signed a memorandum to partner with BMKG, Indonesia's meteorological bureau, to gather weather data. The Japanese insurer will provide weather index products that pay a certain amount to contract farmers when rainfalls drop below the forecast amount of the past three months.

Such technologies and services provided by companies in disaster-prone Japan are likely to become promising exports to Southeast Asia. 

With an insurance premium of 50,000 rupiah ($3.76), contract farmers will be entitled to recuperate up to 500,000 rupiah if a drought occurs. Sompo Japan is narrowing down potential insurance agencies to partner with, such as local financial institutions. The company plans to test-run products in some areas as early as this autumn and go full swing in 2018. 

Sompo Japan started selling weather index insurance products for banana producers in Thailand in 2010 and in the Philippines in 2014. The company plans to release policies in Myanmar as soon as it gets government approvals.

The company plans to boost its lineups of countries of sale and products to increase contracts fivefold to 30,000 in Southeast Asia by 2025.

In the wake of increasing damage due to drought caused by unusual weather patterns, governments in Southeast Asia are taking measures to improve infrastructure, such as building irrigation facilities and providing financial coverage for damage claims. 

There are two major strategies for dealing with climate change. One is climate change mitigation, which is any action taken to reduce greenhouse gases such as carbon dioxide. The other is adaptation, which is the ability of a system to adjust to climate change to moderate any potential damage. 

The Paris Agreement, an international framework implemented to slow global warming, requires countries to set a goal of cutting greenhouse gases and taking adaptation measures. Emerging and developing countries -- which are often hit by drought and heavy rains -- are showing interest in the adaptation route. 

The United Nations Environment Programme, or UNEP, estimates the costs of adaptation could range from $140 billion to $300 billion a year by 2030, and between $280 billion and $500 billion a year by 2050.

The market for adaptation solutions is expected to spread globally with the help of multinational funds and local governments. Some companies have started offering products and services catering to these demands. 

Japanese companies are well-positioned to help developing countries adapt to climate change, such as by contributing to better infrastructure, developing cultivation technologies so crops can withstand warmer temperatures, and increasing preparedness for power outages. 

However, Mari Yoshitaka, chief consultant of Mitsubishi UFJ Morgan Stanley Securities, said many Japanese companies have not shown much interest in the global adaptation business. 

But focusing on environmental measures needed to cope with the situation presents business opportunities. 

Photo caption: Sompo Japan Nipponkoa Insurance holds a briefing to explain its insurance products in Indonesia.

 

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