MARIAM ALI BAIG: Let’s start with a brief overview of Salaam Takaful.
RIZWAN HUSSAIN: I have been in this industry for 34 years. I worked with EFU, one of the largest insurance companies in Pakistan, for 27 years. In 2018, my partner and I and our families bought this company, which was then known as Takaful Pakistan Limited. At the time, it was not doing well, so we started to rebuild the image and the business. Today, Alhamdulillah, despite Covid-19 and recent economic stresses, we have become the largest Islamic non-life insurance company in Pakistan. It was a tough and challenging journey.
MAB: Why did you decide to buy this company?
RH: I was fed up. We have the lowest insurance penetration in the region, and this has been the case for the last 30 to 40 years.
MAB: Why is that so?
RH: One, people’s beliefs; halal versus haram; Islamic versus non-Islamic; two, the perceived value of the product for the customer.
MAB: What prompted you to put a significant emphasis on agriculture?
RH: Because I believe people in Pakistan should have the benefit of insurance and social protection.
Crop insurance in different forms has existed for donkey’s years in Pakistan, predominantly pushed by the State Bank of Pakistan through a product known as the Crop Loan Insurance Scheme. However, in our view, the pricing mechanism of this scheme is not beneficial for the farmer and that is why we stepped in and introduced our own product, which is a parametric crop product.
MAB: What is a parametric product?
RH: It is a relatively new concept in the insurance market, and although it has been around for about 10 years, it is only now gaining traction globally, particularly within the social impact space. The companies engaged in parametric products are those that provide coverage for crop damage or damages caused by natural calamities to middle- and low-income people who cannot put themselves back together unless they have some kind of coverage. In this regard, the likes of the Insurance Development Forum, the World Bank and the UN are all engaged in these kinds of initiatives and we believe that if introduced in Pakistan, we could give our farmers the support they need.
MAB: How does this work?
RH: We sell them a product based on a pre-agreed set of parameters, which include excessive rainfall or heat, drought or earthquake, floods and so on. All the parameters are pre-defined. For example, if the heat index hits 50 degrees Celsius over a farmer’s acreage, we will compensate him, no questions asked, and his agreed compensation will automatically go into his bank account. We can do this because we have access to the temperature on his farm on a daily basis through our app. The app also provides farmers with crop advisories, including what to do if the temperature is rising. The beauty of this product is that it requires no human intervention. We do not want to bring in loss adjusters, as this usually creates conflict between the insured and the insurance company. A parametric product may be slightly expensive, but the compensation and coverage it provides are far superior to any product available in Pakistan.
MAB: Do you work with individual as well as corporate farmers?
RH: Yes.
MAB: What is the split percentage-wise?
RH: It would be 95% corporate and five percent individual farmers. The inherent challenge with individual farmers is the lack of penetration, although we have invested a lot in reaching out to them. We have also set up a framework to enable us to go to the farmers directly through NGOs because they trust them. The challenge is the lack of awareness and money. Individual farmers do not have enough money to buy inputs, let alone insurance.
MAB: Do you think a shift to corporate farming would be beneficial to farmers?
RH: It would be because, from the farmer’s perspective, his crop is actually being bought. All he has to do is work with the corporate farming community to produce the required output.
MAB: How technology-driven is your product?
RH: It is all technology-driven. For example, it requires 50 to 60 years’ worth of weather data to even start thinking about it.
MAB: From where do you access your data?
RH: Through local and international sources. Irriwatch in the Netherlands is one of our weather data providers. We are on the verge of signing up for IBM’s data intelligence suite, the GIS system and we are also exploring local solutions, and in this respect, the Space and Upper Atmosphere Research Commission provides an excellent level of data.
MAB: Who crunches the data?
RH: Our in-house team does the data punching and data calibration. This is how we come up with a product that defines the maximum and minimum scope of coverage for the temperature in a particular region based on historical data and trends over the last 10 to 15 years.
MAB: Who manages your app?
RH: Our IT team and Infarmer, our local partner, manage this. After the farmer has mapped his farm, the app will provide him with climate-smart agriculture notifications. The advisory is customised which is why it is important that each farm is mapped because conditions can change every 0.25 kilometres.
MAB: How sophisticated is the farmer?
RH: Farmers are very smart. We send out our field officers to meet them or the communities and train them on using the app; we also provide videos in the local language.
There are almost eight million farmers in Pakistan and only a fraction of them are getting insurance coverage. Yet, the farmer community desperately needs this social protection. For this to work, the community needs to be engaged. We have established almost 25+ partnerships within the ecosystem, including seed and fertiliser companies, NGOs, weather and actuarial modelling companies and banks. There has to be an ecosystem, because only then can we create the required social impact. As an insurance company, I cannot do this alone. I have to create that ecosystem and this takes time. Enabling the technology takes time as well. We have been investing in this product for the last three years.
MAB: Based on what you are saying, the market penetration for this product is very low.
RH: It is almost non-existent. It is only the tip of the iceberg. Farmers don’t have the money. They subsist on a cycle of debt. They buy seeds and fertiliser; they sell the output; and the cycle continues.
On top of that, we don’t have a unified agriculture policy. Since the 18th Amendment was passed, the provinces have a lot more control over how things are run, and the regulatory requirements for each province are different. There has to be a unified push in terms of agricultural policy and how we protect our produce. Unlike Bangladesh, India or Indonesia, where crop insurance is mandatory, in Pakistan it is not. There has to be a fundamental shift so that we look at our produce as providing the country with the food security it needs and you do this by ensuring farmers have access to the facilities they need and by providing them with adequate insurance protection.
Even if the government makes insurance protection compulsory, the farmer doesn’t have the money to buy it.
MAB: What is the solution?
RH: It has to be subsidised. Globally, wherever these schemes have worked, they have been subsidised.
The seed and fertiliser companies and the whole ecosystem should be incentivised so that the cost of the insurance is absorbed by all the stakeholders, including the government and the insurance companies.
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