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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.

Loans: Proactive Investment in Resilience

Insurance only helps after a disaster. To prevent collapse in the first place, we built a system of non-interest, partially forgivable loans, which farmers can use to directly reduce their risk exposure.

These loans are structured into two behavior-linked tiers:

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Tier 1:

Up to $250, available to all approved farmers

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Tier 2: 

Up to $500, available only after successful repayment of 75% of Tier 1 loan

 

Loans are designed to fund risk-reducing capital investments such as:

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  • 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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Farmers repay only 75% of the loan principal over three years; the remaining 25% is automatically forgiven if repayment is on track. While repayment is voluntary (there is no legal enforcement), access to future loans and insurance is revoked if repayment obligations are not met.

 

This trust-based, access-controlled mechanism encourages responsible borrowing without exposing farmers to debt traps.

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