Why Bangladesh needs agricultural microinsurance
Bangladesh needs to adopt policies to promote agricultural microinsurance for small farmers. Small farmers are the backbone of the rural areas, where two-thirds of the population of Bangladesh live. Despite recent progress, many live at or below the poverty line and are exposed to major weather-related crop risks. Climate change is exacerbating these weather risks, causing extreme rainfall and temperatures that destroy crops and leave these farmers vulnerable. Annually, 10-20 percent of crops are lost to severe flooding, drought, flash floods, storm/cyclone surges and other weather events. The lack of insurance discourages these small farmers from investing in better seeds, fertilisers and farm equipment by "self-insuring"—basically storing some of last year's seeds. Studies show that insured farmers are more likely to invest in new crops, improved seeds and fertilisers, and land improvement.
Bangladesh has seen a wave of pilot experiments in agricultural insurance over the past decade. We now have the evidence to show that insurance works, it will be accepted by small farmers, and can be fine-tuned to protect against major weather risks. Brac and Islamic Relief are providing insurance against livestock deaths. Sadharan Bima Corporation (SBC), Green Delta Insurance Company Ltd, and Pragati Insurance Ltd have joined forces with Oxfam, World Food Programme (WFP), and Swiss Re to pilot-test weather index-based crop insurance (WIBCI). The SBC, Oxfam and the International Water Management Institute recently collaborated with the Sacred Heart Foundation, a local NGO in the country's haor area, to provide WIBCI for smallholders in this highly vulnerable region. Over 600 small farmers were recently delighted to receive payments when flash floods destroyed their crops in the last few days of the enrolment period. The WICBI is a novel system in which "bad weather" measured by satellites, automated weather stations and drones triggers payments based on damaging events, reducing the need for adjusters and the likes, reducing business costs and speeding up payments to the affected farmers. Using digital platforms and insurance-bank-NGO partnerships, these projects have been able to provide timely compensations to small farmers within weeks of a damaging weather event, allowing the farmers to replant or make other timely decisions.
Today, fewer than 30,000 out of the 1.2 crore small farmers—under 0.003 percent—have participated in one of these WIBCI pilot projects. These pilot experiments required a roughly 50 percent subsidy from donors and/or the Ministry of Finance, but evidence suggests that the amount of subsidy can decrease as farmers become more familiar with insurance and more farmers are covered, improving risk pooling. The foundation of insurance is pooling risks. Crores of farmers need to participate to thin out these risks and protect this smallholder backbone of our rural society. Green Delta has shown that a private insurer can operate profitably using tailored insurance for smallholders in specialty crop production.
Legal reforms are needed to make it easier for banks to cooperate with the insurance companies and NGOs engaged in local development. Licencing standards need to be preserved while making one-stop processing available for this broader set of insurance partners.
Bangladesh needs more trained actuaries and specialists in insurance operations, along with agronomists and meteorologists who understand insurance—and this should be addressed by the universities. Improvements are needed in the geographic details and accuracy of the weather data released by the Bangladesh Meteorology Department. Better quality and accessible crop yield data, along with inexpensive and timely terrain maps relevant to monitoring flooding and drought, are needed to support this effort. Networking platforms that will allow insurance people, interested NGOs, the SBC, agronomists, geodesic science specialists, digital specialists, and relevant professionals from universities and governmental agencies to mingle and generate new partnerships are needed to spur this industry. Agricultural extension specialists should become knowledgeable partners in these efforts.
Does agricultural or crop insurance need to become a public responsibility? Does it require the type of heavy public subsidies that exist in the US and Western Europe? Government intervention is certainly required along the lines outlined above. Public or charitable subsidies may be necessary in the pilot stage and the early start-up. But our argument is that effective upscaling, use of new digital and remote sensing technologies, and effective partnering of private, NGO and governmental agencies should be sufficient to launch sustainable crop and other insurance schemes.
We already have over a decade of pilot experiments and accumulated knowledge on what is required to create a sustained crop and a broader agricultural insurance system. It is time to put a stop to endless pilot projects, and move forward to create weather protections for the smallholders of rural Bangladesh, who will have to confront the growing weather challenges in the future due to climate change.
Abdullah Al-Maruf is an associate professor at the department of geography and environmental studies in the University of Rajshahi, Bangladesh.
J Craig Jenkins is professor emeritus at the department of sociology in the Ohio State University, US.