Crop Insurance as a Risk Management Strategy in Bangladesh

1.1 Statement of the Problem
Chapter 1: Background and Introduction
In recent years, natural disasters, particularly climate-related ones, have increased both in
frequency and magnitude. Scientists the world over have agreed (IPCC, 2007) that humaninduced
climate change is exacerbating this impact. Findings show that economic losses from
disasters are rising dramatically – almost nine-fold in real terms from the decade of the 1960s
to the 1990s, and insured losses more than 15-fold. Of these, losses due to extreme
precipitation events, floods and storms increased most (Munich Re, 2003). The IPCC also
concluded that at least part of the increase in economic losses is due to changes in climatic
conditions (IPCC: 2001). Another factor behind this increase in losses is viewed to be
increasing concentration of people and capital in vulnerable areas. The poor and the
marginalized of the developing countries are the worst victims to these disasters (POVCC,
2003; UNDP, 2005). On the other hand, they have the least capacity to adapt. For some lowincome
countries, losses due to climate disasters account for several percentage points of
their GDP. Per capita loss in relation to GDP is at least 20 times higher in developing
countries than in the industrial world. Agriculture sector is likely to be affected most due to
extreme weather events like cyclone, flood or drought. So, the farmers are hit hardest.
For floodplain countries like Bangladesh, structural measures for management of disaster risk
and its consequences often were found less effective. So non-structural measures like microinsurance
or crop insurance are being suggested as a risk management strategy. The rationale
is that poverty and vulnerability to climate change feed each other, and this nexus warrants
that climate change policies work in concert with poverty reduction policies. However,
traditional micro-credits and savings are inadequate when poor farmers with no safety or
security nets are exposed to risks beyond their means to cope with. Therefore, micro or crop
insurance (CI), customized to specific needs of the poor, may be an effective instrument for
the purpose.
UN Climate Convention and the Kyoto Protocol have included the provision of insurance as a
mechanism to address the risks from climate change. What remains from the insurance
discussions prior to 1992 is reflected in Article 4.8 of the UNFCCC, which calls upon Parties
to ‘consider’ actions, including those related to insurance, to meet the specific needs and
concerns of developing countries with respect to both the adverse impacts of climate change
and the impact of the implementation of response measures. Article 3.14 of the Kyoto
Protocol calls for the implementation of Articles 4.8 and 4.9 of the UNFCCC in fulfilling
obligations of the Kyoto Protocol, and explicitly calls for the consideration of the
‘establishment’ of insurance. The term ‘insurance’ is not defined in either treaty or in COP
decisions and thus, the term does not refer to any specific kind of risk transfer or collective
loss sharing instrument.
The following are the main decisions and actions taken by the UNFCCC Parties :
• The Conference of Parties Four (Cop-4) decision 5/CP.4 establishes a framework for
further analysis for the implementation of Articles 4.8 and 4.9 of the UNFCCC and 2.3
and 3.14 of the Kyoto Protocol : a) identification of the adverse effects of climate change;
1