Crop Insurance as a Risk Management Strategy in Bangladesh

Therefore, the main objective of the study was to develop a realistic framework and concrete
roadmap for introducing crop insurance as a risk management strategy for the farmers in
Bangladesh. Of course, this was to be based on an extensive review of literature and
experiences of crop insurance around the world, including Bangladesh. A correct diagnosis
of the failed attempts of the past would lead to realistic prescriptions. In this context, some of
the challenges related to CI that raised in the course of the study are:
• Is the probability of loss from climate disasters adequately calculable?
• If CI cannot be made at least financially viable, how can the loss be minimized to a
maximum level?
• How to reduce the problems of adverse selection & moral hazard/corruption?
• How to spread the risks on a wider scale? How could the private sector & NGOs be
involved in CI ?
• Are there ways & means of policy & voluntary-based cross-subsidization?
• Is it viable to create insurance funds with premiums in kind by local small groups?
• What is the policy-institutional framework and models that can make CI a sustainable
venture?
The study is based on both secondary and primary data and information. The vast literature
on theoretical aspects of crop insurance and its experiences worldwide served as the database
for the content analysis. This included the literature on past experiences of crop insurance in
Bangladesh. The primary data and information were collected through different instruments,
such as survey questionnaire, FGDs, interview schedule, inception workshop and roundtable
discussions with stakeholders at different levels. Based on comments from the inception
workshop, 450 farmers were selected for survey from three districts: 150 farmers from each
district, with 50 each from three groups of farmers – small, medium and large. The three
survey districts were: Sunamganj (as a flashflood area, northeast of Bangladesh), Lalmonirhat
(as a drought & monga-prone area, north of Bangladesh) and Pirojpur (as a cyclone and
flood-prone area, south of the country). The survey villages again were divided into three
groups, based on the severity of natural hazards: extremely disaster-prone, moderatelydisaster
prone and less disaster-prone villages. The purpose of these different levels of
segmentation was to see the difference in responses of farmers at different levels of risk to the
survey questionnaire.
Farmers’ Response to CI
Farmers’ response to CI is quite positive. Even though they have difficulty in understanding
CI processes, they are familiar with life insurance. Handling of micro-credit by the farmers
created a confidence that micro-insurance might bring in good for them as well. If the farmers
see that the money they are paying returns and help them during crisis, surely it will become
popular. For CI, the readiness of farmers to pay premiums vary, depending on the size of the
farms and the level and prospect of disaster, causing harm to their crops.
As seen from the review of experience in the world, in the developing countries public sector
mostly offers CI, while in the developed countries, it is offered by private insurance
companies. For Bangladesh, in view of past experiences, there needs to be a partnership
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