Crop insurance in Bangladesh remains a volatile area because of the country’s geographical propensity to natural disasters. This vulnerability has deterred insurance providers to stay away from this risky area, resulting in farmers having to succumb to the losses inflicted by regular cyclones and floods in the vast delta.
However, Green Delta Insurance Company’s (GDIC) venture into this untapped market is promising to change this. Its pilot project to introduce a weather index-based agri insurance won the third prize at Inclusion Plus Award, a global competition organized by Metlife Foundation.
The Dhaka based company initiated a pilot project in 2015 jointly with International Finance Corporation (IFC), which was supported by USAID’s Agricultural Value Chains Activity& BFP-B Challenge Fund. GDIC launching its first policies for 200 tomato farmers, with technical assistance from the International Finance Corporation (IFC) and World Bank. The policy included coverage for different markers of harvesting uncertainty like unseasonal rainfall, cold spell, and drought. To deal with the innumerable variables, GDIC designed the products to be area-specific, crop-specific and weather-specific.
What’s even more interesting is that the claim settlement process was entirely automated. Satellite data and Bangladesh Meteorological Department weather and Skymet Weather Services Private Limited, an Indian service providing firm, were used to ascertain damage. The integrity and credibility of this data ensured a fair and transparent methodology.
Crop Insurance, specifically Weather Index-based Insurance (WII), has long remained an unexplored market in Bangladesh. The state-run Sadharan Bima Corporation (SBC) suspended its initial (1975-99) pilots on Indemnity based Multi-Peril Crop Insurance (MPCI) owing to unsustainable claim ratios. In the last decade, several multilateral organizations and international NGOs, such as ADB and Oxfam have tried to implement index-based insurance in Bangladesh within a limited scale for flood.
As a result of the 2015 initiative by GDIC, supported by the International Finance Corporation (IFC), the Global Index Insurance Facility (GIIF), to launch the Weather Index-based Insurance project, IFC created and deployed a weather data grid providing a spatially smooth source of interpolated weather data (rainfall and temperature) for every 10sq. km of Bangladesh. This is first time in Bangladesh wherein Weather Index Based Agriculture Insurance products has been designed for Cash Crops across the country such as Industrial Potato, Vegetables, Hybrid Rice Seed, Cassava etc. Also the country’s first time claim settlement on heavy rain due to Cyclone Signal and Cold Wave.
The initial run boosted the farmers’ morale, despite the amount of claim being paid in was only Tk. 80 thousand. Consequently 2000 farmers have purchased WII products of GDIC in the next season.
The methods for delivering the products to farmers follow the global best practices. Rather than selling WII directly to the farmers, the global trend is to deliver agriculture insurance through a value chain bundled approach, where the insurance company ties up with one or more agencies providing finance, input, or contract farming support to the farmers.
That is exactly what GDIC has done. Apart from reducing the transaction cost, this approach helps the insurer in creating a network effect, reaching economies of scale and delivering value to the farmers through partial or full subsidy by the partner agency. The partner agencies also find value in such approach since their business objectives are inversely related to the anomalies of the insured weather events.
GDIC’s Deputy Senior Vice President, Ali Tareque Parvez, said that the company is working on digitalization as well as incorporating agriculture microfinance in the insurance. It will gradually introduce seed bag germination, crop clinic, input, debit card for input purchase, bank loan and portfolio level products.
Because of how the data is used, no assessor is needed for claim settlement, making the process smooth and quick. GDIC also introduced weekly weather forecast and crop advisory for the Farmers in Bangla. Call center also developed for farmers wherein they can take crop advisory for any crop at free of cost.
“We have filed insurance twice with Green Delta and we got our claims,” said Shulka Rani HaldarofChitalmari, Bagerhatwhere one of the pilot was implemented. She feels the insurance benefitted her ‘immensely’.
Mr. Parvez said that the uniqueness of this insurance is that it can be implemented anywhere in Bangladesh for any crop.
“We want banks, seed and fertilizer companies, agriculture aggregators to work with us, so that we can provide them with different product bundles in insurance coverage,” said Farzana Chowdhury, the Managing Director and Chief Executive Officer of GDIC.