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Model Structure

In order to both support during and prevent crises this model will both provide insurance after damages to crop yield occur, while also providing farmers with loans that will be used to directly decrease risk exposure.

Risk Assessment 

In designing this system, we collected detailed financial and operational data from the books of ten rice farms in Thrissur. The data included aspects such as land size, input costs, yield expectations, and historical experiences with crop failure. From these interviews and field data, we assumed the following per-farm, per-year probabilities:

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  • 81% chance of a normal year (yield ≥ 90% of expected revenue)

  • 3% chance of a moderate loss year (yield = 30–90%)

  • 16% chance of a collapse year (yield = 0–30%

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These probabilities align with the broader Kerala agricultural trend of low-frequency, high-severity events observed through irregular events such as the 2018 Kerala Floods.

While standardized government rice prices mitigate price fluctuation concerns, natural disasters still pose a substantial threat to a farm’s existence.

Insurance Design: A Collapse-Focused Safety Net

We do not insure every loss

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A payout is made only if a farm’s actual revenue falls below a personalized collapse threshold, calculated as:

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(Expenses ÷ Expected Revenue + 0.20) × Expected Revenue

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This formula accounts for each farm’s cost structure and adds a 20% buffer to ensure not just cost recovery, but survival capacity. For example, if a farm’s expenses are 45% of its expected revenue, its collapse threshold is 65% of revenue. If the farmer earns more than that, no payout is made. If they earn less, we pay the difference up to the cap defined by their collapse threshold.

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This ensures we:

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  • Protect against actual economic collapse

  • Avoid overpaying for small dips

  • Preserve funds for longer-term use

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Across all 10 farms in our pilot, these thresholds range from 59% to 68% of expected revenue, depending on cost-efficiency.

Reimbursement Grants: Accountable Investment in Resilience

Insurance only helps after a disaster. To prevent collapse in the first place, we established a system of reimbursable grants, enabling farmers to strengthen their resilience through verified, pre-approved investments.

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Under this model, farmers: 

 

1. Plan their intended improvements and submit a proposal detailing the expected costs, materials, and outcomes. This planning stage allows our team to evaluate each proposal based on the organization’s current financial capacity and the impact potential of the project before committing support.

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2. Once a proposal is approved, the farmer carries out the improvements using their own funds. After completion, they submit documentation to demonstrate that the planned upgrades were completed as described. Upon verification, the farmer is reimbursed for up to 100% of total eligible costs.

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Eligible Reimbursable Investments:​

Reimbursements are designed to support risk-reducing capital improvements, including but not limited to:

  • Drainage bund repair (flood protection)

  • Irrigation pumps or hoses (drought resilience)

  • Certified disease-resistant seed (blast/pest resilience)

  • Sprayer kits and pesticide bundles

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