Crop Insurance as a Risk Management Strategy in Bangladesh

non-borrowing farmers the sum insured is value of guaranteed yield, which can be extended
up to value of 150 percent of the average yield.
Premium rates during Kharif are 3.5 per cent of the sum insured or actuarial rate whichever is
less for pearl millet and oilseeds, 2.5 per cent for other Kharif crops (June to October); 1.5
per cent for wheat, and 2 per cent for other Rabi crops (November to March). In case of
annual commercial/horticultural crops, actuarial rates are applied. The sum insured beyond
value of 100 percent of guaranteed yield attracts commercial rates of premium for all crops.
The premium in case of small and marginal farmers is subsidized by 50 per cent, which is
shared equally by the Government of India and the State/UT. The premium subsidies to be
phased out on sunset basis, over a period of five years, and at present it is 10%.
Table 3.9: Crop Insurance under NIAS program in India
Three levels of indemnity, i.e. 90 per cent, 80 per cent and 60 per cent respectively for low
risk, medium risk and high-risk areas, are available for different crops. The insured farmers
of a unit area may opt for a higher level of indemnity on payment of additional premium.
As regards sharing of risks, till transition to actuarial regime is made in a period of five years,
all claims above 100 per cent of the premium in case of cereals, millets & pulses will be
borne by the Government of India and the States on a 50:50 basis. In case of annual
commercial / horticultural crops, all claims above 150 per cent of the premium in the first
three years will be paid out of Corpus Fund to which contributions are made by central &
State governments on 50:50 basis. This would be above 200 per cent of claims thereafter.
3.11.5 Whether Developing Countries should adopt Model of Developed Countries?
For various reasons, developing countries should avoid adopting approaches to risk
management similar to those adopted in developed countries. Clearly, developing countries
have more limited fiscal resources than do developed countries. Even more importantly, the
opportunity cost of those limited fiscal resources may be significantly greater than in a
developed country. Thus, it is critical for a developing country to consider carefully how
much risk management support is appropriate and how to leverage limited government
money to spur insurance markets. In developed countries, government risk management
programs are as much about income transfers as they are about risk management. However,
Developing countries cannot afford to facilitate similar income transfers, given the large
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