A report of World Bank (WB) has suggested the government to overhaul its current insurance act to make way for launching a diverse line of agri-insurance schemes.
At the same time, it has proposed formation of a new taskforce to examine options for a new institutional framework to scale up agri-insurance in the country.
Such recommendations have been made in a recent technical report, prepared by the Washington-based development financier in collaboration with the government's Bank and Financial Institutions Division (BFID).
The report noted that currently there is essentially 'no formal agricultural insurance market' in Bangladesh.
With the exception of a few small-scale pilot schemes by private insurers and some cattle insurance initiatives by micro finance institutions, the private sector is currently not providing crop or livestock insurance on a large scale, the study pointed out.
Every five years, on an average, production shocks lead to a drop of up to 50 per cent in crop income, available for consumption in average rural households.
In this context, the WB study has identified four types of agri-insurance schemes that have huge growth potentials in Bangladesh. These are -- dairy cattle insurance, aquaculture insurance, crop insurance, and fully-subsidised insurance for the most vulnerable.
Most notably, the report has pushed for the formulation of a new insurance act that would be more internationally compliant and would accommodate a diverse array of agri- insurance schemes.
Pointing out that the current insurance act does not recognise index-based insurance, it said the new insurance bill should classify index risk transfer products as insurance.
The enactment of such a bill would significantly reduce the legal risks associated with the development of new index insurance products.
The primary responsibility for implementation of the legal and regulatory framework for insurance sector lies with the Insurance Development and Regulatory Authority (IDRA), the report noted.
Citing various global experiences, it opined that agri-insurance is more likely to succeed under a public-private partnership (PPP) arrangement formalised in a 'well-designed institutional framework'.
As such, the government may consider forming a taskforce to examine options for an institutional framework with representations from the government and the private sector, the report recommended.
The BFID can play an active role in directing public policy for agri-insurance, while the public insurer Sadharan Bima Corporation can play the role of an apex agri-insurance body that would assist the private sector companies in developing various relevant schemes, it also said.
Noting that 36 per cent of rural households in the country own cattle, the report observed that dairy cattle insurance could help unlock access to credit and higher-yielding breeds while stabilising income in bad years.
"Welfare impact analysis shows that dairy cattle insurance can reduce expected default rates of financial institutions' livestock lending portfolios, and therefore crowd in more productive credit, especially to smallholder producers."
The report has also recommended introduction of 'named-peril or all-risks' aquaculture insurance products for the finfish and shrimp producers.
Shrimp insurance can be a potential entry point for aquaculture insurance. It has the potential to double shrimp yields with significant impact on smallholders' income.
For the rural households of small- and medium-scale farmers, the WB report has recommended introduction of area yield index insurance (AYII) for crop variations like Aman and Boro.
Insurance compensation is found to increase crop income by 17 percent in bad years relative to disaster relief programmes, it noted.
"In addition, AYII could increase loan repayment by up to 35 percent in bad years, and thus allow banks to expand access to formal credit and therefore unlock productive investments."
Meanwhile, for the most vulnerable households, such as char populations, fully-subsidised insurance may offer a cost-effective alternative to traditional post-disaster relief, the study opined.
Meanwhile, the WB report has also recommended establishment of Bangladesh agricultural insurance technical support unit (TSU) to develop a local centre of expertise in design, rating and implementation of agricultural insurance.
When contacted, officials from FID and IDRA said they would examine the recommendations of the report.
"We would go through the report and analyse whether and how these recommendations can be implemented," said a government official concerned.
