Office Address of Dhaka Insurance

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					                Crop Insurance in Bangladesh

 Introduction           Providing Social Security to Farmers in
                                  Flood-Prone Areas
  Research
  Methods                       Seminar June 7th , 2007

  Provider                        Dhaka, Bangladesh
   Issues                            Presented by:
  Product                             Efrath Silver
Design Issues
                                      Laura French

  Prospects

 Barriers &
Opportunities

 Conclusions
                        Introduction

 Introduction   • Microinsurance as a growing market
  Research        in Bangladesh
  Methods          – Looking towards product diversification
  Provider
   Issues       • Crop insurance, in particular, is
  Product         needed:
Design Issues
                   – International recommendations for
  Prospects          development
                   – Need for social security
 Barriers &
Opportunities      – Context of Bangladesh: frequent
                     flooding, agrarian society, rural poor
 Conclusions
                          Introduction

 Introduction   Demand-side analysis:

  Research      • 2006 PREM study
  Methods         focus on flood prone
                  areas:
  Provider        Homna, Meghna,
   Issues         Harirumpur,
  Product         Sariakandi, Bera &
Design Issues
                  Veramara
                  → Riverine Flooding
  Prospects
                • Demonstrates need,
 Barriers &       demand and
Opportunities
                  marginal commercial
                  viability in some
                  areas
 Conclusions
                                         Source: Akter, Sonia & Roy Brouwer. Demand Assessment and Test
                                         of Commercial Viability of Crop Insurance in Bangladesh (2006).
                                          Introduction

                                       Need                                                        Demand
 Introduction

  Research
  Methods
  Provider
   Issues
  Product
Design Issues
                                                                 Financial Viability
  Prospects                                                                    Average           Demand          Commercial
                                                            Probabilit
                                                                               Damage              (USD            Viability
                                      Risk Area             y of Flood
                                                                              Cost /flood       premiums         (indemnity
 Barriers &                                                 Risk /year
                                                                                (USD)             /week)         /premium)
Opportunities                  Riverine embanked                17 %              550               0.71               1.0
                               Riverine unembanked              20 %              300               0.52               0.9
 Conclusions                   Coastal                         100 %              175                0.6               4.6
                               Flash Flood                      30 %              175                0.4               7.3

                Source: Akter, Sonia & Roy Brouwer. Demand Assessment and Test of Commercial Viability of Crop Insurance in Bangladesh (2006).
                 Research Methods

                Research goal:
 Introduction   – to explore possibilities for crop microinsurance to
                  mitigate flood risk in Bangladesh, from a supply-side
  Research        perspective
  Methods
  Provider      Research approach:
   Issues       – Literature study
                – Case studies
  Product           • including SBC experience in Bangladesh and crop
Design Issues         insurance in other countries
                – Interviews
  Prospects         • With mainstream insurance companies (4), NGO/MFIs
                      (10), government stakeholders (2)
                – Field visits
 Barriers &
Opportunities   Analytical Methods:
                – Stakeholder mapping
 Conclusions    – SWOT analysis
                     Research Methods

                •   Possibilities need to consider:
 Introduction

  Research
  Methods
                                    Target              Provider
  Provider                          Clients
   Issues
  Product                                     Product
Design Issues                                 Design


  Prospects
                •   To meet considerations of: Financial Viability, Affordability,
                    Contribution to Risk Reduction and Governance
 Barriers &         → Complex problem
Opportunities       → Use this opportunity to raise issues for
                         discussion
 Conclusions
                Provider Issues

 Introduction

  Research
  Methods
  Provider
   Issues
  Product
Design Issues

  Prospects

 Barriers &
Opportunities

 Conclusions
                    Provider Issues

 Introduction   • Who should provide crop
  Research        insurance?
  Methods
  Provider      • At least 3 possibilities:
   Issues
                  – NGO/MFIs
  Product
Design Issues     – Mainstream insurance companies
  Prospects         (including public general insurer,
                    Sadharan Bima Corporation)
 Barriers &
Opportunities     – Partnership
 Conclusions
                Provider Issues – NGO/MFIs

                                                                  NGOs / Microfinance Institutions (MFIs)
                                                         Stakeholder tree diagram for flood insurance in Bangladesh
 Introduction
                                    Government of Bangladesh                                                                NGOs / Microfinance Institutions(MFIs)

  Research
  Methods                                  Bangladesh
                                              Bank
                                                               Microcredit Regulatory
                                                                     Authority
                                                                                             Regulations,
                                                                                             monitoring,
                                                                                            supervision &
                                                                                                               Implementation,
                                                                                                               product
                                                                                                               development,                    Individual NGOs / MFIs
                  Ministry of Finance
                                                                                        enforcement, though    delivery to clients,
                                              Microcredit Regulatory                      few specific rules   management of
  Provider                                          Act, 2006                                                  portfolios



   Issues                                 Society Act,
                                             1860
                     Ministry of                                                            Licensing &
                     Commerce                                                               registration

  Product                                              Office of Registrar of Joint
                                                     Stock Companies and Firms                                          Additional
                                                                                                                                                 Palli Karma-Sahayak
                                                                                                                                                 Foundation (PKSF)
                                                                                                                         funding
Design Issues                                 Bangladesh
                                                                                                                                               Foreign / Outside Donors

                                           Academy for Rural
                                             Development
                   Ministry of Local
  Prospects       Gov., Rural Dev. &
                    Cooperatives             Rural Dev. &
                                             Cooperatives                                                        Promote
                                               Division                                 Complimentary            industry
                                                                                        Capabilities: data,      standards, self               INAFI Bangladesh
                                                                                        R&D, education           regs. and

 Barriers &       Ministry of Water
                    Resources
                                           Flood Forecasting & Warning Centre
                                                                                                                 transparency



Opportunities                                  Bangladesh Agricultural                                                                LEGEND
                                             Development Center (BADC)
                      Ministry of
                                                                                                                                               Sub-level of Ministry
                      Agriculture
                                            Bangladesh Agricultural Research
 Conclusions                                        Centre (BARC)
                                                                                                                                               Performs activities of
      Provider Issues – Mainstream Insurers

                                                             Mainstream Insurance Companies
 Introduction                                    Stakeholder tree diagram for flood insurance in Bangladesh


                                 Government of Bangladesh                                                                              Private Sector

  Research
  Methods                               Departmen
                                           t of
                                                            Chief
                                                         Controller of
                                                                                Insurance
                                                                                   Act
                                                                                                       Sets
                                                                                                    premiums           Professional
                                        Insurance         Insurance                                                   Association of              Bangladesh Insurance
                                                                                                                        Insruance                      Association

  Provider         Ministry of
                   Commerce
                                                                                  Central
                                                                                  Rating
                                                                                Commission
                                                                                                    Governance,
                                                                                                    supervision,
                                                                                                      licensing,
                                                                                                                         Industry



   Issues                                                                    Education,
                                                                                                     regulations
                                                                                                                    Implementation,
                                                                                                                         product
                                             Bangladesh                  research & cert.                             development,                       Mainstream General
                                         Insurance Academy                  for dealers                                                                 Insurance Companies
  Product                                                                                                          delivery to clients,
                                                                                                                    management of
                                                                                                                        portfolios

Design Issues                              Bangladesh
                                        Academy for Rural                                                                                                Sadharan Bima
                                          Development                                                                                                     Corporation
                 Ministry of Local
  Prospects     Gov., Rural Dev. &
                  Cooperatives            Rural Dev. &
                                                                                                                                                        Green Delta Insurance
                                                                                                                                                           Company Ltd.
                                          Cooperatives
                                            Division
                                                                                            Complimentary                                           Bangladesh General
                                                                                            Capabilities:                                           Insurance Company
 Barriers &     Ministry of Water
                  Resources
                                        Flood Forecasting & Warning Centre                  data, R&D,
                                                                                            education


Opportunities                               Bangladesh Agricultural                                                           LEGEND
                                          Development Center (BADC)
                   Ministry of
                                                                                                                                            Sub-level
                   Agriculture
                                        Bangladesh Agricultural Research
 Conclusions                                    Centre (BARC)
                                                                                                                                            Performs activities of
                Provider Issues - Partnership

 Introduction     Potential Partner-Agent Model

  Research
  Methods           Mainstream                                 NGO/MFIs as                 Provide        Potential
                                                                                        product, claims
                    Insurance                    Develop       Insurance Agent                            Microinsurance
  Provider          Companies                   product: ie,   for Marketing of
                                                                                           & product
                                                                                          education       Clients
                                                  claims
   Issues           (Microinsurance                            Products like:                             (the Poor who are
                    products f or the                          Awareness and                             clients of
                    Poor)                                      insurance education to                     NGO/MFIs)
  Product                                                      the target clients
                                                               Underwriting (issuing
Design Issues                                                  insurance policy)          Premium
                                               Underwriting
                                                premium        Premium collection
                                                               Facilitate claim
  Prospects                                                    settlement process



 Barriers &
Opportunities
                   Source: Al Hasan, Rashed. A Market Survey on Microinsurance in Bangladesh

 Conclusions
                       Provider Issues

 Introduction   Central Issues to consider include:
  Research        1. Motivation of provider & goals of plan
  Methods               –     Profit-seeking, cost minimizing
  Provider              –     Overall economic/agricultural improvements
   Issues
                  In most developing countries, agriculture still represents a
  Product
                  significant component of the economy and provides an
Design Issues     important part of national income (…) where so many small
                  farmers live near subsistence level, the institution of an
  Prospects       effective crop insurance scheme can provide an essential
                  element for agricultural development.
 Barriers &       Source: Rahman, M. Lutfor. Agricultural Risks & Public Policy (2000)
Opportunities
                        –     Poverty reduction & meeting MDGs
 Conclusions
                  Provider Issues

 Introduction   2. Transaction/administration cost of plans
  Research
                       The Level of…
  Methods
                             Frequency
  Provider
   Issues                    Specificity

                                                 Increases
  Product                    Uncertainty     Transaction Costs
                                                  for Crop
Design Issues                                 Microinsurance
                              Limited
                             Rationality
  Prospects
                            Opportunistic
                             Behaviour

 Barriers &
Opportunities    From interviews, the overwhelming majority of both
                 NGO/MFIs and mainstream insurance companies
 Conclusions     believed these are higher at mainstream providers.
                  Provider Issues

 Introduction   3. Human Resources & Information
                   Capabilities
  Research
  Methods         –   Actuarial abilities
  Provider
   Issues             Interviews show that no NGO/MFIs use
  Product
                      actuarial studies for existing
                      microinsurance products whereas
Design Issues         Mainstream Insurers are compelled to by
                      law (i.e., Central Rating Commission)
  Prospects
                  –   Ability to mobilize crop insurance team
 Barriers &
                  –   Flooding data (historical & projections)
Opportunities
                  –   Agricultural information
 Conclusions
                  Provider Issues

 Introduction   4. Access to clients
                   –   Presence in target areas
  Research
  Methods          –   Relationship with target clients
                       –   Trust & reliability
  Provider
   Issues              –   Ability to educate clients as to benefits of
                           insurance
  Product
                       –   Existing information on client portfolios
Design Issues
                       –   Monitoring & frequency of interaction
  Prospects        –   Claims Supervision
                5. Access to reinsurance            Though Mainstream
 Barriers &                                         insurers have greater
Opportunities   6. Access to                        access to reinsurance,
                                                    NGO/MFIs can request
 Conclusions       subsidies and donors             donor assistance.
                Product Design Issues

 Introduction

  Research
  Methods
  Provider
   Issues
  Product
Design Issues

  Prospects

 Barriers &
Opportunities

 Conclusions
                 Product Design Issues

 Introduction   Central issues to consider include:
                1. Choice of geographical location
  Research
  Methods          •   Piloting vs. wider introduction
  Provider
                       All respondents would start with a pilot:
   Issues
                       We would start with a test area, see what the results
  Product              are and build our capacity to address the situation.
Design Issues                   - Executive Director of one MFI/NGO

  Prospects
                   •   Level of risk (frequency X damage) and type of
                       risk
 Barriers &
Opportunities      •   Need for risk pooling
                   •   Agricultural data
 Conclusions       •   Target client location
                 Product Design Issues

 Introduction   2.       Level of specificity of product
                     •      One crop or multi-crop
  Research                  →      Majority of respondents would want to
                                   implement a plan tied to a specific crop.
  Methods
  Provider                  We would start with paddy because it is the major
   Issues                   crop.
                                    -Executive Director at one NGO/MFI
  Product
Design Issues               The reason to begin with a general plan is
                            simplicity.
  Prospects                         -Coordinator of Commerce & Technology at one NGO/MFI


                     •      Index-linked or indemnity based
 Barriers &
                     •      Market value of crops or production cost
Opportunities
                            (at stages of maturity)
 Conclusions                      India Case Study provides valuable lessons
                 Product Design Issues

                3.       Bundling vs. Voluntary approach
 Introduction
                     •         Offer insurance under terms of microcredit loan?
                     •         Offer insurance with post-disaster relief?
  Research           •         Sell insurance as separate product
  Methods
  Provider      4.       Alternatives & Compliments to insurance
                     •         Ex-post forms of social security
   Issues
  Product                      Poor households often have informal mechanisms such as
Design Issues                  the utilization of savings, the sale of property, and other
                               income generating activities, borrowing from relatives or
                               informal sources to manage risks (…)
  Prospects                    - Al Hasan, Rashed. A Market Survey on Microinsurance in Bangadesh (2007).

                     •         Ex-ante preventative measures
 Barriers &          •         Concept of “living with flooding”
Opportunities              •        Endogenous knowledge & experience - flooding as part
                                    agricultural cycle
                           •        Flexibility in agricultural production - risk of path dependency
 Conclusions
                Prospects for Crop Insurance

 Introduction

  Research
  Methods
  Provider
   Issues
  Product
Design Issues

  Prospects

 Barriers &
Opportunities

 Conclusions
                Prospects for Crop Insurance

                  •   Based on our interviews, we identified the following views on the
 Introduction         prospects for crop insurance:
                       – Thoughts on need:
  Research
  Methods                 80% of the people live in rural areas and are dependent on agriculture
                                        -Managing Dir. at a Mainstream insurer
  Provider
                          Crop insurance is the best measure to mitigate risk of damage for
   Issues                 farmers     -Deputy General Manager at a NGO

  Product              – Interest in providing?
Design Issues             →All respondents have considered implementation of crop insurance

                       – Will it be profitable?
  Prospects               →Respondents are split down the middle; many are unsure

 Barriers &            – Would you implement if plan would not be financially
                         sustainable in near term?
Opportunities             → All respondents, except one, said they would, in order to:
                           • Meet Corporate Social Responsibility, Social Objectives
 Conclusions               • In the hope that it will be financially sustainable in the long-term
                Barriers & Opportunities

 Introduction

  Research
  Methods
  Provider
   Issues
  Product
Design Issues

  Prospects

 Barriers &
Opportunities

 Conclusions
                Barriers & Opportunities

 Introduction

  Research
  Methods
  Provider
   Issues
  Product
Design Issues

  Prospects

 Barriers &
Opportunities   Top two                             Top two
                1.   Lack of client understanding   1.   Need for subsidies
 Conclusions    2.   High risk factor               2.   Inadequate monitoring
                Barriers & Opportunities

 Introduction                          Top Three Opportunities for
                                                NGO/MFIs
  Research                        1.    Have experience
  Methods
                                  2.    Meet need for Social
  Provider                              Security
   Issues                         3.    Good market

  Product
Design Issues

  Prospects                            Two stated opportunities for
                                            Mainstream insurers
 Barriers &                        1.    High demand
Opportunities                      2.    Potential for collaboration

 Conclusions
                           Conclusions

                •   Research goal:
 Introduction

  Research          To explore possibilities for crop microinsurance to
                    mitigate flood risk in Bangladesh, from a supply-side
  Methods           perspective
  Provider
   Issues       •   Complex issue; considerations include:
                     – Target Clients
  Product            – Provider             ←
Design Issues        – Product Demand       ←

  Prospects     •   Different barriers have been recognized

 Barriers &     •   But there are also opportunities
Opportunities
                •   Communication between stakeholders is needed to
                    decide upon all these issues
 Conclusions
                   Conclusions

 Introduction

  Research
  Methods
  Provider              Thank You!
   Issues
  Product
Design Issues
                We welcome your questions &
  Prospects
                        comments!
 Barriers &
Opportunities

 Conclusions
                Propositions for Discussion

 Introduction      Who is the best provider for crop
  Research
                   microinsurance in Bangladesh?
  Methods
  Provider         What needs to be done to increase
   Issues
                   communication between potential providers
  Product
Design Issues
                   (Mainstream insurers and MFI/NGOs)?

  Prospects
                   What needs to be done to help secure
 Barriers &        subsidies and donors?
Opportunities

 Conclusions
                Propositions for Discussion

 Introduction      In your opinion, are effective support
                   systems in place?
  Research
  Methods          Including complimentary capabilities like flood data
  Provider         & agricultural data, as well as legal/regulatory
   Issues          framework.
  Product
Design Issues
                   How can poor farmers’ awareness about
  Prospects        insurance be raised?

 Barriers &
Opportunities      Based on all considerations, what is the
                   ideal crop insurance product?
 Conclusions

				
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