Climate Risk Transfer by Insurance Mechanism: a snapshot on the barriers and opportunities of introducing crop insurance in Bangladesh.

Loss and damage associated with the adverse impacts of climate change is not an apprehension for the future, it has become a reality for the countries that are exposed to unprecedented extreme weather and climatic events triggered by changing climate. According to the IPCC, the economic losses from weather and climate related disasters have increased significantly, estimated from a few USD billion to above 200 billion annually from 1980 to 2010 (IPCC,
2012), also causing higher fatality rates, especially in developing countries.

With the increase of climate related disasters and subsequent loss and damages the developing countries were demanding ‘compensation’ in the conference of the Parties of the UNFCCC; finally the COP 16 held in Cancun in 2010 recognized the need for strengthening international cooperation and expertise to understand and reduce climate induced loss and damage and established a ‘Work Programme’ on Loss and Damage under the Subsidiary Body for Implementation (SBI) – a technical body under the UNFCCC. In the following COP (COP 17) Parties
decided to continue the Work Programme under three thematic areas, which include identifying a range of approaches e.g., risk reduction and risk transfer among others.

Over the years, since the establishment of the Work Programme the negotiation on loss and damage progressed well in procedural aspects. Meantime, loss and damage got an institutional mechanism, namely Warsaw International Mechanism (WIM) in Cop 19 in 2014 and also considered as a standalone approach, apart from adaptation and mitigation, in the Paris Agreement. However, still no significant progress in undertaking and implementing appropriate measures for addressing loss and damage on the ground.

Among the approaches only the ‘risk transfer tools’ e.g. insurance progressed well especially by the patronage of the development countries and insurance companies. For instance, in 2015 the G7 started the InsuResilience Initiative, an initiative on climate risk insurance. The specific goal of InsuResilience is to increase the number of people in low- and middle income countries with direct insurance coverage against the negative impact of climate change induced events by 400 million people over the period from 2015 to 2020 (BMZ, 2015).

While the G7’s Climate Risk Insurance Initiative is considered to be a good start, but this should not be considered the only panacea as insurance, by its nature, has many limitations. Primarily it’s a market based approach, which would create another ‘phase of injustice’ if climate victims in the developing countries are asked to pay premium for accessing to insurance benefits. Because, people in those developing countries who need insurance, yet are unable to afford the insurance, insurance literacy is also significantly low (Hirsch, Thomas 2015),on the other hand not all loss and damages e.g. cultural loss, non-economic losses, and loss and damages caused by slow onset events etc. are not insurable.

Given the potential and limitation of ‘insurance tools’ as one the approaches to address loss and damage (especially risk transfer) this article provides a brief analysis on the prospects and barriers of developing an effective insurance package that would effectively transfer risks of the climate vulnerable sectors. This analysis summarises a study findings that CPRD has been implementing to identify scope and barriers for introducing a risk transfer mechanism such as crop insurance to the climate vulverable sectors. CPRD employed both qualitative research method e.g. surveying the insurance companies and other relevant stakeholders, conducting Key-informant Interviews
(KII) of some insurance experts etc. in implementing the said study.

The study also identifies the challenges and supports to be required so that the insurance companies in Bangladesh finds business interest in launching ‘insurance product’ objectively to transfer climate induced risks.

Insurance as Climate Risk Transfer Tools: Context and relevant experience
According to KI’s opinion, insurance sector in Bangladesh is rather at rudimentary stage to think about a new package for transferring risks of natural catastrophe like cyclones, rainfall variability and drought. With the growing concerns for supporting smallholders with risk transfer facilities, a very few insurance companies are in the process of developing such products.

However, there some initiatives practiced to a limited scale to support smallholders to recover crop loss caused by sudden onset disaster. For instance, the Pragati Insurance Company ltd, a privately owned venture established in 2000, introduced crop insurance scheme in Sirajgongj district in 2013 to support loss recovery caused by monsoon floods. That initiative, however, was a periodic attempt, not eventually conceptualized as a ‘business product’ also didn’t consider its operational sustainability. Collaborated by a number of national and international organizations with differentiated roles and responsibilities e.g. Oxfam Bangladesh in planning, SDC (Swiss Development Agency and Corporation) in financing, MMS (Manob Mukti Songstha a local NGO) in implementation, CRM
India and IWFM (Institute of Water and Flood Management) respectively in technical support and data collection and Swiss Re- the leading global reinsurance company as the reinsurer this initiative didn’t last long.

As per the scheme this insurance covered 1661 households from 17 villages which got affected by flood during 2013. Each of the insured household could claim yearly gross insurance benefit of BDT 8000, irrespective of what amount of losses they incurred, if the flood water level reaches the trigger point set earlier by the insurance beneficiaries and the technical experts IWFM and CRM. In the initial year there was no claim as the flood water level didn’t reach to the trigger point. Hence, for the following year the ‘trigger point of flood water level’ reset at relatively lower scale and every household claimed insurance benefit in 2014. In 2015, the insurance
scheme was extended to other villages and then suddenly phased out, presumably due to phasing out of the project supported by SDC. As informed by the key informants, the insured households/people were relieved from paying premium, it’s the funding agency who paid premium on their behalf.

Focus of Risk Insurance: vulnerable sectors and communities first
Climate resilient agriculture and crop production system is the key to sustaining country’s growth and economy-as most the KIs opined. Considering country’s agrarian economy, rural employment and strive for attaining food self-sufficiency it is critical to undertake required adaptation measures to climate change impacts. Also to undertake appropriate measures to support smallholders’ to recover and offset any loss and damages of standing crops caused
by climate change impacts and variability. Hence with the increased exposure to the weather related disasters
like flood, flash flood, river erosion, salinity ingress, cyclone etc. agriculture sector should be the first choice of introducing risk transfer mechanisms.

However, currently there is no such scheme, from both public and private agencies, that would support farmers to get back at least some of their incurred loss they are facing almost every year by climate change induced rough weather events. Next to crop, livestock are considered as the critical assets that support farmers in farming, producing organic manure and most importantly as the last resort of recovering economic crisis. Every year, the weather related extreme events kill or wash away hundred thousands of livestock putting farmers deeper to economic shock and debt trap. Hence, insurance facilities against those productive assets would support farmers recovering from economic loss and debt-trap of local money lenders.

Such mechanism or scheme is also important to help farmers to keep practicing agriculture while majority of them do not consider farming as the ‘way of livings’, rather as an ancestral occupation as this symbolizes wellbeing and cultural attachment. Unfortunately one, may be the only, initiative of crop insurance scheme once introduced by Shadaran Bima Corporation, a state run company, couldn’t operationally successful due to lack of manpower, team structure, poor monitoring and poor rapport with its beneficiaries. Experts believe that with sustained fund flow from the public sources, Shadharan Bima could have been done better if they followed transparent and target specific mechanisms.

Other than crop, the insurance experts considered Shrimp framing that could brought under insurance coverage because the climatic parameters like temperature, rainfall and humidity are very diligently linked to the shrimp cultivation. Shrimps are very susceptible to changes in temperature and rainfall. Delayed rainfall or prolonged rainless situation, as being observed in the recent years, increases water salinity that ultimately results poor growth even death of shrimp making farmers economically vulnerable.

The experts also find potential for a new insurance scheme for the Poultry sector in Bangladesh. There is an estimated 150,000 poultry farms in Bangladesh (The Daily Star, 2017). In every year the poultry farms face huge economic losses due to fatal outbreak of diseases such as bird flu which is very much linked to rise in temperature. Widespread cold wave and sudden temperature fall in the recent years are also causing death of poultry birds.

Besides direct loss and damages of cash crops and other valuable assets, climate change are also affecting livelihoods of the marginalized professional groups such as the coastal fishers whose livelihoods depend primarily on fishing in the Bay of Bengal. According to Chowdhury et al., (2012) livelihoods of around 3.5 million coastal peoples are in stake with the rise of rough sea events resulting from the rise in sea surface temperature by 0.30-0.48°C during a period from 1958 to 2009. The rise of rough sea events forces fishers to avoid fishing, hence the more the rough sea weather days the less the fishing days. Considering fishing as the only means lo livings of around 3.5 million people,
they should brought under an insurance scheme as opined most of the stakeholders interviewed.

Introduction of Climatic Risk Insurance products: barriers and hurdle
Public-sector: As identified through stakeholders’ discussion, paying insurance premium by a smallholders is one of the major hurdles of launching crop insurance in Bangladesh. Currently, there is no clear guideline or initiative from Bangladesh government to overcome this hurdle. The ways of overcoming this hurdle possibly either by subsidizing
the premium amount or paying full premium amount on the basis of exposure and extent of vulnerability to the impacts of climate variability and associated disasters. Taking example of ‘Prodhanmontri Sosho Bima’, a crop insurance scheme of Indian government, country’s insurance experts felt introduction of such scheme with the provision of huge subsidy and effective engagement of the local institutions similar to the Indian initiative. However, insurance companies in Bangladesh should invest in capacity building and institutional strengthening; for example, establishment of risk pooling mechanism in both public and private sectors, ensuring transparent and accountable
governance system and rebuilding trust among their clients.

Technological innovation and advancement, for instance installation of Automated Weather Station, is also required for introducing weather index based insurance product. Hence, insufficient technical support from Bangladesh Meteorological Department (BMD) is also another barrier for developing crop insurance scheme in Bangladesh.

Technical, institutional and infrastructural:
The insurance companies are unevenly expanded throughout the country, leaving rural areas out of insurance services. Moreover, there are less reinsurer support in national level and have to rely on foreign reinsurers. Besides, poor implementation knowledge and shortage of skilled manpower are also another challenge of expanding area coverage as well as designing an innovative scheme such as weather index based scheme. Moreover, literacy on insurance and insurance benefits is significantly low in Bangladesh. The insurance experts believe that this area needs special focus and investment to make beneficiaries aware, rebuild their trust and motivation.

Coordination: Lack of coordination among government institutions, NGO and community people is also identified as another barrier of introducing crop insurance in Bangladesh. Country need to establish a proper coordination mechanism and support among the key public institutions like Agriculture, Fisheries, Livestock, and Meteorology etc., as well as support from NGO as they have wider access up to the community level.

Financial support: As most of the stakeholders stated, the insurance company often suffers financial crisis due to lack government’s patronage as well as inadequate funding both from national and international sources. Key government agencies like department of Agriculture, Fisheries, and Livestock etc. should mobilize resources (both financial and technological) from international sources for introducing innovative insurance schemes.

Lack of understanding: The high-up management personnel of the insurance companies also need to understand the significance of introducing crop insurance scheme to the impacts of climate change. As interviewed, most of the private insurance companies consider crop insurance as a risky venture, hence they need proper orientation on this. Sharing of similar initiatives of other countries may help building understanding and motivation of country’s insurance experts and company owners. Besides, it’s is also important to establish insurance as a public service
mechanism. Ironically image of insurance activities in Bangladesh has got ‘negative impression’ due to ill practice and non-accountability to their clients. Rebuilding positive image on insurance mechanism is undoubtedly a big challenge in Bangladesh.

Given the context of barrier and opportunities as discussed above, the insurance experts and other relevant stakeholders made following recommendations for introducing an effective crop insurance mechanism in Bangladesh;

First: There should have a crop insurance policy with relevant guiding principles to be regulated by relevant ministry of the government of Bangladesh. In this regard, government could subsidize partial or full  premium on the basis of exposure and vulnerability to the climate induced disasters. The crop insurance
could be made obligatory with every agricultural loan and the insurance could be paid directly to the insurer
agency at the time of loan disbursement. Reinsurer support could be made available in country and also
from abroad with easy terms and condition.

Second: A central, regional as well as a local level technical team could be established to select geographical area, types of crop, premium rate, duration and other support mechanisms. This team  should include relevant experts from the government agencies, meteorological department, insurance company, NGOs representative etc. A coordination mechanism among the key sectors like agriculture, fisheries, livestock, cooperatives and local government also could be established to collaborate with the insurance companies, building community trust and
to establish an accountable governance mechanism.

Third: A small pooling mechanism could be established with the participation of 4/5 insurance companies having offices in remote areas. Insurance companies also should undertake awareness raising activities at community level so that people understand the potential risk of climate change induced loss and damages and enthused by the
benefits of risk transfer schemes.

Fourth: Government should invest in developing climate risk as well crop insurance experts through training, professional degrees and academic curricula. Information communication technology like smart phone, internet etc. could be incorporated to disseminate weather forecasts, premium deposit and process insurance claim.

Selected references
BMZ (2015): InsuResilience. The Climate Risk Insurance Initiative. Berlin
Hirsch, Thomas et,al (2015): Climate-Related Loss and Damage Finding a Just Solution to the Political Challenge;
jointly published by Act Alliance, German Watch and Bread for the World Brot für die Welt ;

About The Author

Muhammad Mizanur Rahman
Muhammad Mizanur Rahman completed MS in Marine Science from the University of Chittagong. He has been working as a Research Associate at Center for Participatory Research and Development –CPRD since 2016. Prior to this he worked in the field of natural resource conservation, marine protected area and climate change at IUCN.

 This article was written from some findings of an ongoing research of CPRD which is supported by Bread for the World. 

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