Crop Insurance as a Risk Management Strategy in Bangladesh

3) The full-service model operates in many ways like any formal sector insurer. Here, a
single entity is responsible for everything related to the insurance product, from
product concept development through marketing, servicing and claims assessment.
The insurer assumes all of the insurance-related risk and receives any profits. To
manage this risk and avoid losses, full-service insurers have to have a competent staff,
build and maintain adequate reserves and adhere to regulatory requirements. The Self-
Employed Women’s Association (SEWA) of India is an example of the full-service
model. SEWA saw improved health care as crucial to their strategy of improving the
quality of life, ensuring that women’s health needs are met, and enhancing member
empowerment.
4) The last model is the provider model, in which the provider and the insurer are one.
These providers, usually doctors, clinics or hospitals, offer policies to individuals or
groups. The policies cover general ranges of care limited by the services available
within the provider’s unit. An example of the provider model is the GRET program in
Cambodia. EMT, GRET’S microfinance program in Cambodia, recognized that
although their credit products were assisting clients to improve income levels, illness
could rapidly negate any improvements. At the same time, EMT management realized
that the risks and expertise required to offer insurance were formidable, and they
wished to concentrate on their credit and savings product. Therefore, they requested
that GRET create another entity to develop and test health insurance products in an
overlapping client market.
Importantly, and in contrast to the contractually defined services provided by insurance and
microinsurance, disaster cover can and often is also be provided as a public good in the form
of social protection. National or state governments often underwrite disaster risks (i.e., they
compensate victims after a disaster) from their budget or from a designated catastrophe
reserve fund. There are no premium payments on the part of the insured, as taxpayers absorb
the costs.
3.9 Participation in Crop Insurance Program – Compulsory Vs Voluntary
A crop insurance scheme may envisage voluntary or compulsory participation. In case of the
voluntary approach, participation is optional for a farmer who is eligible to be insured. Such
schemes are in Canada, USA and Chile. As regards the compulsory participation, certain
categories of farmers who are eligible to be insured or who grow specified crops participate
automatically. The work compulsory implied that there is a system of automatic insurance for
a group of farmers. In Japan crop insurance is compulsory for all farmers who grow the
insurable crops over more than a minimum prescribed area. The Mauritius, Cyprus and
Windward Islands schemes are compulsory for all growers of certain JANUARY - JUNE
2004 17 crops. In India and Philippines crop insurance is compulsory for farmers who
borrow from banks and other financial institutions. The compulsory approach has two
advantages. The problem of adverse selection is reduced significantly, and there is reduction
in the cost of sale of insurance. There may, however, be dissatisfaction among low-risk
farmers who will have to cross-subsidize high risk farmers.
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