Welcome to Liga Asuransi, a trusted information center that covers in-depth topics related to risk management and insurance across key sectors—including agriculture, energy, construction, finance, and logistics.
We are here to help you understand the various challenges and risks faced by business actors and the wider community, and how the right protection solution through insurance can provide security, sustainability, and resilience in the face of uncertainty. Every article we present is written with an educational and practical approach, and is reinforced by direct experience in the field. We believe that good risk literacy is the foundation of smart decision making.
Please explore hundreds of other articles on this blog, and feel free to share them with your colleagues, business partners, or community. Thanks for visiting—happy reading and may you find them useful!
The Need for Innovation in Agricultural Risk Protection
Climate change, weather uncertainty, and the increasing frequency of natural disasters have made the agricultural sector one of the most vulnerable sectors to the risk of major losses. Amid these challenges, the National Food Security program will not succeed if it only relies on increasing production without being accompanied by an adaptive and efficient risk protection system.
Traditional approaches such as subsidies and direct assistance have often been reactive and not quick enough to respond to the needs of farmers affected by disasters. Conventional agricultural insurance systems based on field claims also have many weaknesses, such as slow claims processes, high verification costs, and potential moral hazard.
To answer this challenge, a new breakthrough is needed in the worldagricultural insurance— one of them is parametric insurance. With a certain parameter or index-based approach, such as rainfall or extreme temperatures, this insurance can provide compensation automatically and quickly to farmers once the agreed parameters are met, without having to wait for a damage survey in the field.
Parametric insurance is not just a product innovation, but a revolution in the way we view risk protection. It opens up opportunities for farmers to get more certain, efficient, and affordable protection. Moreover, with the advancement of satellite technology, soil sensors, and cloud-based data processing, the implementation of parametric insurance in Indonesia is now very possible.
This article will discuss the concept of parametric insurance, its advantages, supporting technology, initial implementation in Indonesia, and how cross-sector collaboration—including state-owned enterprises and insurtech—can make this scheme a future solution for national food security.
What Is Parametric Insurance and How Does It Work?
Parametric insurance is an innovative form of insurance that pays claims based on the occurrence of certain parameters or indicators, rather than on the results of physical damage verification in the field. In the context of agriculture, these parameters can be rainfall, temperature, soil moisture, wind speed, or drought index. When predetermined parameters are reached or exceeded, claim payments are made automatically to participants.
A simple example: if an insurance policy stipulates that if rainfall in a planting season is below 100 mm for 30 consecutive days, then farmers will receive compensation of IDR 5 million per hectare. Once data from satellites or weather stations shows that these conditions are met, the claim is immediately processed without the need for a survey or manual submission from the farmer.
Unlike traditional insurance that requires damage reports, field verification, and loss value estimates, parametric insurance relies on objective data that has been measured and agreed upon in advance. This makes the claims process faster, more transparent, and minimizes conflict between participants and insurance providers.
This scheme is very suitable for application in the agricultural sector because risks such as drought, floods and strong winds can be measured scientifically with meteorological and satellite data. In addition, parametric insurance allows for the extension of protection to remote areas that were previously difficult to reach by manual survey systems.
In practice, parametric insurance can also be combined with digital models such as mobile applications for registration and reporting, as well as electronic payment systems that facilitate claim distribution. This product is increasingly relevant amid efforts to digitize the agricultural sector and improve farmers’ financial literacy.
For insurance companies, this scheme offers cost efficiency and clarity in risk management. Meanwhile, for farmers, parametric insurance provides certainty that they do not have to prove physical losses to receive assistance, but rather simply meet agreed parameter criteria.
With a data-driven approach, parametric insurance presents a new paradigm in agricultural risk protection that is more modern, adaptive and sustainable.
Advantages Compared to Traditional Insurance
Although traditional insurance has long been used in the agricultural sector, this system has a number of weaknesses that often discourage farmers from participating. This is where parametric insurance offers significant advantages, both in terms of efficiency, speed, and transparency.
- Fast and Automatic Claim Process
In traditional insurance, the claims process usually requires field surveys, damage documentation, and a long waiting time before the claim is approved. This often frustrates farmers and loses confidence. In contrast, parametric insurance uses real-time data from satellites or weather stations to determine whether risk parameters have been met. If so, the claim is paid immediately without a manual verification process.
- Minimal Risk of Moral Hazard
Traditional insurance often faces the risk of moral hazard, where participants do not take good care of their land or livestock because they feel they are “insured.” In parametric insurance, because claims are based on objective data, there is no incentive to manipulate damages, and the risk of fraud is very small.
- Lower Operating Costs
Because it does not require field surveys or individual loss calculations, the administrative and operational costs of parametric insurance are lower. This means premiums can be kept lower, making them more affordable for small farmers and farmer groups.
- Transparency and Certainty
The parameters used in the policy are determined in advance and are accessible to all parties. With a clear system and open data, the claims process becomes more transparent and fair. Farmers no longer need to worry about their claims being rejected without clear reasons.
- Suitable for Large Scale and Remote Areas
Because it is based on spatial data, parametric insurance can cover large areas and remote locations without requiring the physical presence of insurance officers. This is especially relevant in a country like Indonesia with thousands of islands and scattered agricultural areas.
With these advantages, parametric insurance promises more efficient and targeted protection than conventional approaches. This innovation paves the way for more equitable and sustainable agricultural protection for all levels of farmers in Indonesia.
Supporting Technologies: Satellites, Sensors, and Big Data
The success of parametric insurance implementation is highly dependent on the availability and accuracy of the data used to determine risk parameters. In this regard, technological advancements have played a crucial role in making the concept of index-based insurance more feasible and accurate over time.
- Remote Sensing Satellite
Current satellite technology is able to provide real-time weather and climate data, including rainfall, land surface temperature, humidity, and vegetation. Institutions such as NASA, the European Space Agency (ESA), and BMKG provide open data that can be used by insurance providers to monitor environmental conditions in various regions of Indonesia. With satellite imagery, insurance companies can verify parameters without having to go to the field.
- Ground and Weather Sensors
At the local level, the use of IoT (Internet of Things) sensors is also an important supporting tool. These sensors can be installed on agricultural land to measure soil moisture, temperature, air pressure, and rainfall levels. Data from the sensors is then sent to the cloud system and compared to the parameter limits in the insurance policy. With this approach, the system becomes very responsive and precise.
- Big Data and Artificial Intelligence (AI)
By combining historical data on disasters, weather, cropping patterns and harvests, parametric insurance systems can be equipped with artificial intelligence algorithms that are able to predictively model risk. This allows insurers and brokers such as L&G Insurance Broker to design products that are tailored to the needs of specific regions and commodities, with high accuracy.
- Integration into Mobile Applications and Digital Systems
Technology also enables the creation of Android or iOS-based applications for registration, parameter tracking, and claim distribution. Farmers can monitor whether risk parameters are approaching claim limits, and receive direct payments through their digital wallets or bank accounts. This reduces reliance on manual processes and speeds up execution in the field.
- Blockchain for Data Validation
Some insurtechs have explored the use of blockchain to store and verify parameter data so that it cannot be manipulated. This increases transparency and strengthens the trust of insurers in the system.
With the support of a growing technology ecosystem, parametric insurance now has a strong foundation for widespread application in Indonesia’s agricultural sector — making risk protection faster, more efficient, and more reliable.
Pilot Project and Initial Implementation in Indonesia
Although the concept of parametric insurance is still relatively new in Indonesia, several pilot projects have been conducted in recent years as an effort to test the effectiveness and readiness of the system in the field. These pilot projects are important stepping stones in proving that a data-based and technology-based approach can be applied to the national agricultural sector.
Contoh Pilot Project: OJK & IFC
One of the early initiatives came from a collaboration between the Financial Services Authority (OJK) and the International Finance Corporation (IFC) in 2019-2021. This project involved corn and rice farmers in the NTB and NTT regions, using rainfall parameters as the basis for claims. The results were quite promising, with the claims process taking only two weeks and not requiring a damage survey.
Coffee and Cocoa Farmers Project in Sulawesi
In South Sulawesi, several coffee and cocoa farmer cooperatives are also working with private insurance providers and insurtech startups to develop parametric products based on extreme temperatures and soil moisture. This approach helps farmers respond to the risk of crop failure due to climate change, while also opening up access to financing from cooperatives and partner banks.
The Role of Government and Private Institutions
The Ministry of Agriculture and the National Food Agency have begun considering parametric insurance as an alternative to complement conventional agricultural insurance programs such as AUTP. Several national insurance companies have also begun developing weather index products in collaboration with technology companies and satellite data providers.
This is where the role of insurance brokers like L&G Insurance Broker becomes very important. L&G can bridge between farmers, insurance companies, and technology providers to create parametric products that suit local needs. In addition, L&G can provide technical education, create digital registration systems, and assist in automated claims processes through data integration.
Although still in the trial phase, these pilot projects show that parametric insurance is not just a theoretical concept. With the support of policies, digital infrastructure, and multi-sector collaboration, national scale implementation is only a matter of time.
Potential Collaboration with Insurtech and BUMN
The implementation of parametric insurance in the agricultural sector cannot stand alone. Active collaboration is needed between various parties – from the government, insurance companies, technology startups (insurtech), to state-owned enterprises engaged in agriculture and food. This synergy between parties is the key to the success of the transformation of a modern and comprehensive agricultural risk protection system.
Insurtech as a Driver of Innovation
Insurtech companies have a vital role in developing end-to-end digital systems: from participant registration, collecting and analyzing parameter data (weather, temperature, humidity, etc.), to automated claims processes. Several local insurtechs have started developing AI and machine learning-based platforms that are able to map agricultural risks in real-time. Collaboration with insurance companies and brokers such as L&G Insurance Broker allows the preparation of products that are in accordance with field conditions.
The Role of State-Owned Enterprises in Infrastructure and Funding
SOEs such as PT Asuransi Jasindo, Bulog, and PT Pupuk Indonesia can play a role in distributing insurance products, educating farmers, and integrating this program into the agricultural product purchasing system or providing production inputs. With a broad national network, SOEs can accelerate the penetration of parametric insurance throughout Indonesia, especially in remote areas and areas less accessible to the private sector.
BUMN also has a large funding capacity and can partner with global reinsurance companies to build a solid risk transfer scheme. This is important to ensure the sustainability of the long-term program.
Brokers as Strategic Connectors
L&G Insurance Broker can play a role as a facilitator of collaboration between all parties. With experience and internal digital systems such as LIGASYS, L&G is able to help develop distribution models, educate participants, and monitor risks and claims efficiently.
This collaboration is not just about business, but part of a bigger mission to build national food security through a smart, inclusive, and technology-based approach.
Conclusions and Recommendations for National Scale Implementation
Parametric insurance is an innovative solution to address increasingly complex agricultural risks due to climate change, extreme weather, and natural disasters. Unlike traditional approaches, this system offers speed, transparency, efficiency, and high accuracy thanks to the support of satellite technology, weather sensors, and AI-based data processing.
Several pilot projects in Indonesia have proven that this approach can be implemented with positive results, especially for small farmers who have so far been less covered by conventional protection systems. However, to make it a national scale solution, a collaborative strategy is needed involving the government, state-owned enterprises, insurance companies, insurtech, and brokers such asL&G Insurance Broker.
Future recommendations include: accelerating regulation for index-based insurance, providing open data infrastructure, community-based farmer education, and strengthening the role of brokers and insurtech in distribution and claims systems. With full support from all parties, parametric insurance can be a strong foundation to protect the agricultural sector while strengthening the National Food Security program in a sustainable manner.
Looking for insurance products? Don’t waste your time and contact us now
HOTLINE L&G 24 JAM: 0811-8507-773 (CALL – WHATSAPP – SMS)
Website: lngrisk.co.id
Email: oktoyar.meli@lngrisk.co.id
—
