Bangladesh is ranked the sixth country in the world most likely to be affected by extreme weat¬¬her and climate change in the coming years. Forecasts suggest that Bangladesh will suffer a decrease of around 3% of its GDP annually due to climate-related impact on agricultural production. Farmers dwelling in the climate sensitive zones such as the flood and drought-prone northern Bengal or the Southern Delta are often exposed to weather-related risks that are beyond their means to cope with. Although these challenges have been recognized by the Government of Bangladesh, private sector and the development agencies, it was not possible to yet address them with an integrated approach due to a number of institutional, technical, financial and operational challenges. Recovery strategies for farmers in times of a bad harvest remain a major challenge in the agricultural sector, as small and medium-size farmers do not have access to formal credit through banks or other intermediaries due to high default rates. This forces the farmers to engage in informal debt agreements exposing them to often serious exploitation and socio-economic risks leading to a cycle of poverty and inability to bounce back into solvency.
To respond to this perennial crisis in Bangladesh’s agriculture sector, a private non-life insurance company called Green Delta Insurance Company (GDIC), has taken up a pilot project to test a portfolio of agricultural insurance products in the Southern Delta, which is heavily affected by excessive rainfall, low temperatures and unpredictable humidity. GDIC’s products are area-specific, crop-specific and weather-specific. In 2016, USAID’s Agricultural Value Chains Activity supported GDIC in launching its first policies for 200 tomato farmers, with technical assistance from the International Finance Corporation (IFC) and World Bank. The policy included coverage for different markers of harvesting uncertainty like unseasonal rainfall, cold spell, and drought. The entire claim settlement process is automated and weather based, and satellite data from Bangladesh Meteorological Department and Skymet Private Limited, an Indian service providing firm, were used in ensuring a fair and transparent methodology to determine the extent of the damage.
The piloting journey began in the Santoshpur village of Chitalmari upazila, Bagerhat. In November 2016, AVC supported the piloting in Chitalmari, one of its working areas, bearing 75% of the premium rate and linking GDIC with its partner organization, Renaissance Enterprise, to sign contracts with 200 dike tomato farmers for the first ever private sector driven agricultural insurance products in the country. The alliance with this local intermediary is important because they have improved local knowledge and play the role of a trustworthy mediator between the company and the farmers. This model significantly reduces GDIC’s operational cost, making implementation financially viable. By helping to develop a distribution channel, AVC supported GDIC in testing its insurance products. As a next step, GDIC held numerous Focused Group Discussions (FGD) with farmers to define the product features – what to cover under the policy and how much premium the farmers can pay. Awareness programs and networking meetings were also held to share the new concept of Weather Index Insurance (WII), its importance and how it works. Based on the collected field data, GDIC designed six WII products which they then discussed with the farmers for their feedback. AVC is providing technical support in conducting the FGDs and awareness campaigns, defining the product features and cost structure, and supported the launch by subsidizing the initial policy premiums up to 75% to meet the gap between farmers’ capacity and the premium rate, to help WII enter the market. Over the implementation phase, the product features are changing and AVC is supporting GDIC to continuously adapt its policies and products to make them viable for the Bangladeshi farmers.
Within a few weeks of purchasing the insurance coverage, the farmers suffered an instance of excessive rainfall, a weather indicator covered under the policy. GDIC immediately settled the claims of all 200 farmers through a celebratory event. This spread the word about the new insurance products and marked the beginning of a new hope for the farmers of Chitalmari who repeatedly fall victim to unpredictable and extreme weather conditions. Based on this experience, farmers of Chitalmari purchased the policy again, this time bearing the premium themselves. Ms. Neelima Sinha of Chitalmari, Bagerhat, said, “The income from the tomato garden supports important things for my family like the education of my daughters. Although we now have to buy the insurance we are still continuing it because it gives us confidence before harvest and we can rely on it to pay for the important things.” Besides offering the insurance protection, AVC provided GDIC with technical assistance to create an integrated product, supporting the design and piloting of embedded services like SMS weather alerts, farming tips, and tips to mitigate the risks of weather-related loss. For further insight into agricultural insurance mechanisms and how it can function well and benefit both farmers, company, banks and intermediaries, AVC organized an exposure visit to neighboring country India, to the National Insurance Academy in Pune and the Skymet office in Delhi. GDIC is continuing to expand product lines to include region and crop specific products for livestock and area yield indexes to best serve the farmers over different seasons around the year. This will help to create and sustain the demand for the insurance.
Protection from weather-related loss helps the farmers to plan their investments better and make farming choices that benefit the market as a whole. An insured farmer is also a better candidate to access formal credit from banks and intermediaries as her/his likelihood of loan default is much lower. However, some challenges remain which must be addressed to ensure greater and sustainable use of agri-insurance among smallholder farmers. In general, crop insurance requires public private partnership and should be treated as a public good, as continued insurance coverage is generally beyond the financial capacities of the marginal farmer. AVC’s support in successfully piloting this product helps build a strong case for GDIC to seek further support from the Government of Bangladesh. AVC’s exit strategy includes reducing the premium subsidy and linking GDIC to other relevant market actors to form partnerships and support them so farmers can continue to demand and access crop insurance. AVC has also linked GDIC with Eastern Trade Center and Agricultural Business Center to carry on the piloting in other areas of the Southern Bangladesh. GDIC’s sales of insurance policies has been steadily increasing, starting from only 200 farmers to now more than 3000 farmers in about a year’s time. Many of these farmers are regular re-visitors of the policies. In addition to this, GDIC is continuing to work with different stakeholders to overcome the existing challenges in the market for agri-insurance products and pave the way to enable a heightened level of stability and security in the agricultural landscape of Bangladesh. A farmer insured is a farmer empowered, a driver of a virtuous cycle to break out of poverty.