Crop Insurance as a Risk Management Strategy in Bangladesh

increased to 8.51% in 2003. Such a reduction to vulnerability of the poor would also
contribute towards reaching the MDGs.
o Among other potential contributors to the international insurance fund are global and
regional financial institutions, and bilateral donors, such as the World Bank, Inter-
American and Asian Development Banks, DFID, and the German Ministry for
Economic Cooperation and Development (BMZ), which have made the reduction of
physical vulnerabilities in developing countries and their adaptation to climate change
an integral part of their development agenda. Their financial support to such an
insurance scheme could become an effective vehicle to promote hazard mitigation and
risk awareness in their member countries.
o Two recent projects by the World Bank are specially promising as a potential link
with the broad programme of funding support for insurance. The Global Fund for
Disaster Risk Reduction and Recovery (GFDRR) will provide technical assistance for
mainstreaming disaster risk and serve as a stand-by facility to provide quick relief
funding. A Global Insurance Index facility (GIIF) sponsored by, among others, the
EC, is in the planning stage. This facility, as envisaged, will provide backup capital
for index-based insurance covering weather and disaster risks in developing countries
to assure financial protection for small risk-transfer transactions. By constructing a
diversified portfolio of developing country risks, the facility would leverage risk
transfer and thus jump-start the development of risk transfer markets in countries with
underdeveloped insurance markets (World Bank, 2005c). It is anticipated that other
donor and financial institutions will join the GIIF initiative.
o Together with governmental sources, the international reinsurers, such as Munich Re,
Swiss Re and the international NGOs, such as Red Cross/Red Crescent, Oxfam, Care,
etc. can join hands in piloting the CI schemes, particularly in the LDCs like
Bangladesh. Malawi or India already set precedents in micro-and index-based crop
insurance. These initiatives need to be scaled up.
7.2 Weather Index based Crop Insurance: Demonstration of a Model for Bangladesh
Developing a successful weather risk management and transfer program for agriculture
involves four essential steps:
• Identifying significant exposure of an agricultural grower/producer to weather;
• Quantifying the impact of adverse weather on their revenues;
• Structuring a contract that pays out when adverse weather occurs; and
• Executing the contract in optimal form to transfer the risk to the international weather
market.
Each of the steps is outlined in the following four subsections:
Identifying the Risk
Identifying weather risk for an agricultural grower or producer involves three steps:
- identifying the regions at risk from weather and the weather stations that reflect that
risk;
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