DHAKA (AlertNet) - Bangladesh is planning to introduce crop insurance based on a weather index to reduce farmers’ economic vulnerability to shifting climate patterns and extreme weather events.
The Asian Development Bank (ADB) is helping the South Asian country develop the new insurance scheme. The bank considers climate change and weather variability as a big challenge for the country’s agricultural sector.
Similar insurance products have been launched in East Africa, India and other parts of Asia, but their impact is still being monitored.
In a document submitted to Dhaka, the ADB describes index-based insurance as an innovative tool to boost the ability of rural farm households to adapt to changing climatic conditions.
“The insurance policy will link possible insurance payouts with an index calibrated with the weather needs of the crops being insured,” the ADB report says.
Unlike regular crop insurance, policies based on a weather index assess the likelihood of crop failures based on forecasting. Premiums will be higher if crops are projected to be at risk of failure, and lower if they are not.
Bangladesh has some 7.5 million hectares (18.5 million acres) of arable land, according to the World Bank, but this is declining by around 1 percent each year due to river erosion, urbanisation and other pressures from a growing population.
In many low-lying areas, farmers harvest only once a year, leaving their families exposed to hunger if a natural disaster destroys their crop. It has become commonplace for farmers to lose crops to drought, floods and salt intrusion, especially in coastal districts.
The new insurance programme goes beyond the government’s existing disaster risk management measures, such as emergency relief and credit provision. It will benefit vulnerable groups least able to protect themselves against weather-related hazards aggravated by climate change, according to the ADB.
The bank also says index insurance avoids the weaknesses of traditional agricultural insurance, such as costly and time-consuming assessments of individual farms, and the risk of farmers making fraudulent claims.
Rezaul Karim, managing director of Sadharan Bima Corporation (SBC), a public insurer, said that, in most countries, crop insurance is economically unviable, and often requires government subsidies. SBC’s own crop insurance product, introduced on a pilot basis in 1977, was eventually withdrawn in 1995.
“Our insurance policy had been incurring a 400 percent loss since claims consistently exceeded premiums,” Karim said.
EDUCATION TO REDUCE LOSSES
Following a workshop in July with interested organisations, the ADB is planning a pilot programme for index-based insurance in cooperation with SBC and one or two private insurers. Microfinance institutions, nongovernmental organisations and farmer cooperatives will act as the implementing partners on the ground.
Details, including the amount of land covered and premium levels, are still to be finalised. Karim said the government would subsidise half the cost of the insurance premiums, with the other half borne by farmers.
A controversial feature of the new policy is that it is not designed to cover the losses of individual farmers, but of crops across a specified region.
“If the crop of any area as a whole get destroyed or damaged due to the calamity, then farmers will get the loss covered. If (solely) the crop of any individual farmer is affected, he won’t get the (compensation),” Karim said.
The SBC head acknowledged that this could discourage farmers from buying the policy, and may need to be reconsidered. But SBC, the ADB and their partners will monitor the insured areas closely to try and reduce the likelihood of crop losses as well as unjustified claims, he added.
“Farmers will also be educated with the ADB’s financial help so that they understand what to do in which weather pattern to save their crops,” Karim said.
Ainun Nishat, a climate change expert and vice chancellor of BRAC University, said that where insured risks are high, premiums will also be high - a problem that led to the failure of SBC’s earlier attempts at providing coverage.
“The success of weather index-based crop insurance will depend on the rate of the premium, the party who pays it, and government contributions,” Nishat said.
He recommended that premiums be kept very low so that farmers can afford them.
Atiq Rahman, executive director of the Bangladesh Centre for Advanced Studies, a non-profit institute for sustainable development, welcomed the new scheme.
“Such an insurance policy is necessary to save the farmers from crop loss when climate change has started biting,” he said.
But initiatives like this often fail at the implementation level, he cautioned.
“Before launching the programme, we have to analyse how much farmers can pay as premium and if they will be able to pay on a regular basis, since most of the farmers here are very poor,” he said.
“There should be a sincere approach, and benefits (for) farmers have to be ensured first,” he added.
Syful Islam is a journalist with the Financial Express newspaper in Bangladesh. He can be reached at: email@example.com