Guidelines needed for agri insurance

To promote microinsurance and agriculture and livestock insurance, analysts yesterday called for forming a policy guideline, reducing value added tax, providing subsidies and developing actuarial capabilities of the insurance regulator.

Their suggestions came at a workshop titled "Unleashing the potential of Agriculture Microinsurance Market in Bangladesh: Prospects and Challenges" organised by the Financial Institutions Division in association with the Insurance Development and Regulatory Authority (IDRA) and embassy of Switzerland in Bangladesh, at Pan Pacific Sonargaon.

Extreme weather events are detrimental to the agricultural sector of Bangladesh, on which 70 per cent of the population is dependent for their livelihood, said Denis Garand, an international microinsurance expert.

So, the country needs microinsurance and agriculture and livestock insurance, he said.

However, there are some challenges both from the supply side and demand side.

The challenges are a lack of skills, product development, delivery channels, concerns on commercial viability, low exposure of insurance companies, and long claim payout periods.

There are some regulatory challenges too, Garand said while presenting a paper.

"There is no differentiation of microinsurance based on different classes of business and lack of policy guidelines for microinsurance, agriculture and livestock insurance," he said.

The value added tax (VAT) on microinsurance premium is 15 per cent, which is quite high, and many countries lift it to promote insurance, Garand added.

Elias Omondi, an international agriculture insurance policy expert, said Bangladesh's insurance premium was determined not actuarially, but by a committee of the IDRA.

 "So, the IDRA should develop actuarial capability," he said.

He also suggested forming a guideline for agriculture insurance and microinsurance.

Omondi recommended giving a concession of 15 per cent VAT, particularly on agriculture insurance products.

The agriculture sector needs to be brought under insurance coverage, otherwise sustainable development of the sector will not be possible, said Syed Shahriyar Ahsan, managing director of Sadharan Bima Corporation.

"Once we launched crop insurance but it stopped as the product was loss incurring," he said.

To promote the product, its features might be different based on the focus areas, insurance claims settlement should be fast, and the government can provide a portion of the premium as subsidy at the primary level.

Awareness among farmers also need to be raised, he added.

Farmers get around 20 per cent lower crops every year due to natural disasters like flood, cyclones etc, and sometime the effect is quite high, said BM Yousuf Ali, president of the Bangladesh Insurance Forum.

So, the farmers need insurance coverage, he said.

In the first stage, the crop insurance may be launched under group insurance, with high coverage and low premium, he said, adding that the first target should be attracting people.

He urged for government subsidies to promote the product and ensure fair prices of farming products.

The government is providing a lot of subsidies in many sectors, including agriculture, and now some of it should be allocated for promoting crop insurance, said Sheikh Kabir Hossain, president of the Bangladesh Insurance Association.

"Our farmers don't protest against the government for their rights so the government should give them the subsidy on its own," he said.

High VAT on agriculture insurance is not acceptable amid efforts to make the product commercially viable, he said.

For the sake of the product, both the government and the insurance companies should accept some losses in the first stage, he said.

To popularise agriculture insurance, a separate insurance company should be launched apart from Sadharon Bima Corporation, Hossain added.

M Mosharraf Hossain, chairman of the IDRA, said the tax burden should be reduced to promote microinsurance while zero interest lending was also needed to facilitate the agricultural sector.

The government is trying to make the insurance sector fully automated and digital so that people can get the service easily, said Shekh Mohammad Salim Ullah, secretary of the Financial Institutions Division of the Ministry of Finance.

The IDRA and other related government divisions will solve the regulatory policy problems but the insurance companies should come forward to address their issues, he said.

"We are ready to give any support from our part. We need continuous collaboration with development partners like Swisscontact," he added.

Abdullah Harun Pasha, additional secretary to the Financial Institutions Division, Md Benojir Alam, director general of the Department of Agricultural Extension, and Corinne Henchoz Pignani, deputy head of cooperation at the embassy of Switzerland, also spoke at the event.