Crop Insurance as a Risk Management Strategy in Bangladesh

eliminated as well. It reduces huge administrative cost as well as it does not require plot to
plot investigation.
Defining variation in risk and varying premium levels: Last time SBC introduced uniform
premium level, which encourages adverse selection as because in that case both the highly
risky and low risk farms have to pay same premium, so that the risky ones prefer to take
insurance policy. Under weather index program the risk level for different unit area under
one weather stations can be classified under different risk categories. Methodology for such
risk quantification based on historical climatic time series is explained in the next chapter.
Even the risk level in near future under climatic changes can be predicted here as well
based on future prediction of climate attributes by different GCM or other predictions.
Within an unit area variation in risk level is possible, like the inundation height for different
land segments might be different even though they are within one unit. Problems like this
can be solved by including the elevation of each segment of land in the contract, etc as
explained in detail in next chapter. However, this might be complicated and may not be
practiced in the initial years. Rather a farmer's risk pooling technique can be applied as
explained in the next paragraph.
Less number of perils to cover and provision for multi-peril: In an weather insurance
contract it is actually impossible to cover all perils if it is not related to climatic attributes.
Again, including all perils in the contract make it highly vulnerable to high losses. Instead
there should be provision that someone might take 2-3 perils coverage but have to pay more
for it. It also reduces administrative and technical complexity.
Risk pooling among the farmers and co-operative formation: Community or co-operative
formation among the farmers within a homogeneous unit area and introducing provision of
risk pooling among the farmers is possible to reduce the local variation of risk level among
the farmers living within a homogenous unit area defined by Weather Index Approach. It
means for an unit area if flood is defined as water level above 10m MSL, the entire region
will get indemnity. However let us say 10% lands were actually not flooded. Similarly, if
the water level is below 10 m MSL, no one will get compensation. In that case when the
entire land got compensation there should be provision that gfarmers themselves have a cooperative
and re-collect the indemnity bills from those who are not affected at all, and later
compensate it to those who were affected due to flooding in a normal year but not having
indemnities because that year does not satisfy weather index level. Such a co-operative can
be free of influence by the insurer, but can be introduced and formed at the beginning of the
contract with the support of insurer, local govt. and the govt. co-operative authority.
When the crop production is not affected such a co-operative can accumulate certain
amount of crops in kind from all the member farmers and put together as a deposit. This
can be utilized later to pay premium for a season while a situation occurs that most of the
farmers are affected last season by other disaster, which was not insured.
Varying weather index value other than fuzzy approach: The methodology is described in
next chapter that instead of defining just one value of climatic attribute as yes or not to the
index level, a varying loss of crops can be defined based on variation in that climatic
attribute. For example if precipitation is below 25%, 50% or 75% below average level, the
indemnity might vary as well. It might not be as simple because both the magnitude and
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