Crop Insurance as a Risk Management Strategy in Bangladesh

disbursement and Insurance Company can cover the risk. As the access to bank finance for
funding by the poor farmers is difficult because of documentary requirement, procedural
complicacy, and other reasons caused by unscrupulous elements and as they are more reliant
on NGOs for borrowing such arrangement would work better if the insurance companies also
become party to the arrangement. Meanwhile, if decided by the government or other funding
authority, insurance coverage as a mandatory precondition to agricultural loan either from
BKB or other sources would also necessitate such arrangement.
Cross Subsidization for the insurers is advocated by the experts as there is no reinsurance
facility available in the existing market system. Government should come up with a
significant subsidy package for the insurers in order to minimize their risks and offset the
operational unattractiveness. At the initial stage government should create a ‘contingency
fund’ to help the insurers to settle claims due to damages from extreme weather events.
Moreover, international insurers e.g. Swiss Reinsurance, Munich Reinsurance can join in an
effort to access ‘LDC fund’ being maintained by UNFCC secretariat to meet climate related
disasters.
Pool of Insurers and Common fund can help materializing the cross subsidization policy. If
government creates a pool of insurers upon receiving grant from WB, ADB or other donor
agencies/countries to subsidize the insurance premium through BKB then the insurer can
produce an umbrella coverage package for the farmers. Such pool may be formed by SBC,
private insurance companies, NGOs and other interested agencies.
Inclusion of donors is necessary for both financial and technical assistance. Especially the
countries who are more responsible for global warming has to be made morally obligated in
extending such assistance to the victims like Bangladesh.
Index-based weather insurance as is done in many other countries is another mechanism to
proceed with crop insurance as it enables area wise risk assessment. In India such scheme is
in operation and having success.
Overcoming the moral hazards emanating from unscrupulous elements and political
pressure is necessary in order to make such insurance scheme as a viable one. Earlier initiated
crop insurance scheme failed because of lack of commitment, lack of focus and for
unscrupulous elements. The middlemen between SBC and farmers hampered the efficacy of
the earlier scheme by creating moral hazards. Undue political influence caused to waste up
much of insurers money at that time. Many Bank Officers used to defraud both farmers and
SBC with fabricated papers. They tagged insurance with farmers loan package, which in most
cases farmers were ignorant of and consequently insurers’ money went to the bank officers
pocket.
Lessons from past limitations deem to be an imperative in order to proceed with crop
insurance scheme further. Besides the aforesaid limitations, other shortcomings as
experienced by the actors associated with the then crop insurance scheme and as they
narrated are as under:
o Huge loss of SBC out of Crop Insurance was mainly due to afore-mentioned moral
hazards that caused many framed and exaggerated claims.
o Crop insurance at that period of time did not have area-wise operation; area wise or
weather index based operation could have minimized the loss significantly.
99