Soil moisture deficit index

PwC CH

Protecting farmers’ livelihoods from drought

Mitigating climate risk and advancing the energy transition (icon) Building societal resilience (icon) Driving digital insurance solutions (icon)
A handful of dusty soil (photo)

Drought is the number one threat to farmers around the world and climate change has only exacerbated this risk. Within the last ten years, the frequency and severity of droughts have only increased as the five hottest years on record have all occurred since 2015, with 2020 being the second warmest year behind 2016. Not only do high temperatures and droughts put farmers’ livelihoods at risk, they also make it difficult for farmers to secure suitable insurance cover for their crops: Less than 10% of farmers worldwide have drought insurance.

To help insurance providers on the ground offer affordable, easy-to-use crop insurance to farmers, Swiss Re has partnered with VanderSat, a Dutch-based provider of soil moisture data to develop the Soil Moisture Deficit Index. This technology-driven tool uses satellite data to measure real-time soil moisture levels around the world. Why soil moisture? Because it is a more accurate measure of water availability than rainfall, which does not consider other factors that affect crop yields, such as run-off, evaporation and groundwater levels. In short, low soil moisture levels are closely linked to the drop in yield that occurs due to drought.

Soil moisture is also a truly objective indicator that cannot be influenced by the farmer or insurance provider. Swiss Re’s drought insurance solution uses a parametric trigger to determine payouts: If the soil moisture deficit reaches a certain predefined level, the farmer is compensated immediately, eliminating the need to make time-consuming loss adjustment calculations in the field. The entire process is fully digitised and runs on Swiss Re’s Opti-Crop web-based index tracker, which provides both farmers and insurers with real-time soil moisture data, making the solution transparent, cost-effective and scalable.

Initially launched in three European countries in 2019, the Soil Moisture Deficit Index was further rolled out to insurers in ten additional countries in 2020. Thanks to this innovative drought insurance solution, thousands of farmers in 13 countries across Europe as well as various countries in Latin America, Africa and Asia now benefit from access to financial protection from drought.