Bangladesh is mainly an agricultural country. It is an agro based economy .Agriculture sector is a major contributor to GDP which is approximately 10-15%. Many people living in rural areas are farmers whose livelihood largely depends on farming. Every year the crops they produce are exposed to various natural perils namely; Flood, Storm/Hail Storm, Drought etc.
There is a wrong notion among many that agriculture insurance is intended to include crop insurance only. But it is not true. Agriculture insurance includes various aspects of agricultural sector comprising;
(1) Crop insurance,
(2) Cattle insurance,
(3) Poultry insurance,
(4) Insurance of Species etc.
We shall now discuss various aspects of agricultural insurance in brief.
Section-1: Crop Insurance
Crop insurance is a specialized class of insurance business. This insurance is transacted by a limited number of specialist insurance companies usually in the government sector.
Bangladesh is basically an agricultural country and its economy largely depends on agriculture.In that sense Bangladesh economy may be termed as an agro economy. Bangladesh agricultural sector contributes between 10-15% of country’s GDP. In the context of Bangladesh economy, crop insurance plays an important and significant role in nation’s economy.
The vast majority of the population in Bangladesh lives in rural areas or village is farmers/peasants. Their livelihood largely depends on firming or agricultural activities. They grow food in the field by the sweat of their brows and feed the nation. They are one of the poorest segments of the society who mainly depends on their physical labour.
To encourage farming, Bangladesh Government offers various types of agricultural loans and assistance to the farmers in the form of distribution of seeds, fertilizer, pesticides, diesel oil for running agricultural equipments, irrigation pumps etc. at a reduced subsidized price.
There are also banks, financial institutions, NGOs, micro loan lenders etc. who offer agricultural loans and credit facilities to the farmers.
In the olden days farmers used to plough their land manually using the services of bulls/oxen. But that approach is slowly changing and the farmers nowadays use more and more modern farming equipments namely tractor for tilting the land,irrigations pumps for watering purpose etc. in order to increase the yield of their cultivation.
Paddy is the main crop of Bangladesh as rice is the staple food of its people. Other than paddy there are several food items grown in the field by the farmers namely wheat, corn, cotton, sugar cane, vegetables and fruits. Bangladesh is a tropical country having six seasons in a year, where monsoon lasts longer than the other seasons.
The agricultural produce of Bangladesh is exposed to the vagaries of nature namely:
- Floods due to heavy rain
- Overflowing of rivers
- Hail storm, tropical cyclones, tidal surge in the coastal areas
- Pest infestation etc.
Every year a huge amount of standing crops are lost due to natural calamities leaving the farmers helpless and all their hard labour going down the drain.
Who are the buyers of Crop insurance?
Crop insurance is purchased by agricultural producers including farmers and others to protect themselves against either the loss of their crops due to the causes mentioned above or the loss of revenue due to decline in the prices of agricultural products.
- Single peril coverage (Provides protection against single hazard)
- Multi-peril coverage (Provides protection against several hazards)
Crop insurance is based on the principle of large number. The risk is distributed across space and time. The losses shared by farmers in a particular locality are borne by farmers in other areas or the reserves accumulated through premiums in good year can be used to pay indemnities. Crop insurance brings security and stability to farming house and to farmers.
Calamities can be broadly categorized into:
- Wide spread calamities such as cyclone/storm, flood, drought etc.
- Localized calamities such as hailstorm, landslide etc.
Types of Crop insurance
The two general categories of crop insurance are called:
- Crop-yield insurance and
- Crop-revenue insurance
There are two main classes of crop-yield insurance
- Crop-hail insurance: It is generally available from private insurers (in countries with private sectors) because hail is a narrow peril that occurs in a limited place and its accumulated losses tend to overwhelm the capital reserves of private insurers. In early 1820s, crop-hail insurance was available in France and Germany. That is among the earliest forms of hail insurance from an actuarial perspective. It is possible to implement the hail risk into financial instruments since the risk is isolated.
- Multi-peril crop insurance (MPCI): Coverage in this type of insurance is not limited to just one risk. Usually multi-peril crop insurance offers hail, excessive rain and drought in a combined package. Sometimes, additional risks such as insect or bacteria related diseases are also offered. The problem with the multi-peril crop insurance is the possibility of a large scale event. Such an event can cause significant losses beyond the insurers’ financial capacity. To make this class of insurance, the perils are often bundled together in a single policy; called a multi-peril crop insurance policy (MPCI). MPCI coverage is usually offered by a government insurer and premiums are usually partially subsidized by the government.
- Crop-revenue insurance: Crop-yield times the crop price and gives the crop revenues. Based on farmer’s revenues, crop-revenue insurance is based on deviation from the mean revenue. RMA uses the future prices on harvest times listed in the commodity exchange markets to determined prices. Combining the future price with farmer’s average production gives the estimated revenue of the farmer.
- Accessing the future market offers enables revenue protection even before the crop is planted.
Crop revenue covers the decline in price that occurs during the crop’s growing season. It does not cover declines that may occur from one growing season to another.
Section-2: Cattle Insurance
Cattle insurance is another kind of specialized class of insurance business. Like crop insurance only a handful number of specialist insurance companies transact this class of insurance business usually in the government sector.
Animal husbandry is one of the important businesses in Bangladesh. Dairy product firms are growing and flourishing in Bangladesh contributing significantly to Bangladesh economy. Cattle insurance therefore plays an important role. Although it may not be possible to find the total number of cattle heads in Bangladesh, but animal husbandry is an important and growing sector in the context of Bangladesh economy.
Many people especially farmer class in Bangladesh earn their livelihood through animal husbandry in addition to farming. Oxen and bulls are still used to plough farming lands for cultivation of paddy crop.
Due to insufficient medical care and lack of facility especially in the rural areas, many cattle die every year due to various diseases which sometimes may assume the proportion of an epidemic.
Many of us are familiar with mad cow and split hoof diseases etc. in cows. Cattle insurance is taken for protection of rural people from financial loss due to death of their cattle which is one of the most valuable possessions of the rural community.
How to insure cattle
One way is to schedule each animal individually. It may be more cost effective to do this for higher valued animals to be insured for a specific amount. They can be identified in whatever manner by a farm owner (ear tag numbers, name, unique description etc.). Another way is to cover cattle as part of a blanket. In this approach all of the farm’s personal property (cattle, equipment, farm products) are insured in one lump sum amount. The most common way to insure cattle is to schedule them as herd. In this approach it is ensured that the entire group of animals (for example 100 head of cows, bullocks, or buffaloes).
This insurance covers cows, bullocks or buffaloes of either sex certified by a veterinary doctor or surgeon as being in sound and perfect health, free from injury or disease.
Types of cover
- Death of cattle: It covers the cattle insured whilst within the geographical area specified in the policy schedule in case of loss of life (due to natural death or accident), diseases contracted or surgical operation.
- The policy also covers death of cattle which are the subject matter of insurance outside the geographical area in the event of drought, epidemics and other natural calamities.
- Optional benefits: Permanent Disability covers the risk of permanent and total disablement of cattle.
All benefits are subject to a maximum amount as stated in the policy.
Scheduled cattle are covered for “Broad” causes of loss. These include:
- Accidental discharge of water
- Accidental shooting
- Attacks by wild animals and dogs
- Damage in course of transit
- Falling objects
- Fire and lightning
- Loading and unloading accidents
- Riot and Civil Commotion
- Volcanic eruption
- Wind and hail
Section-3: Poultry Insurance
Poultry business is a big business in Bangladesh having hundreds of poultry firms in the country producing a huge number of chickens to meet the requirements of the consumer market. It is a growing and flourishing business. A huge amount of money is being invested in this sector making it an attractive and profitable business. But poultry business is not without its share of problems as certain diseases can kill a huge number of birds and create serious problems and headache for the business. It is therefore essential and important to insure poultry farms against various contingencies.
- (a) Duly completed proposal form is an essential pre-requisite for acceptance of poultry business. The farm should have adequate veterinary facilities.
(b)Close scrutiny followed by pre-acceptance inspection is necessitated must be carried out by the company’s veterinary doctors or officers. However, this should be an essential exercise for big farms.
- It should be ensured that all birds in the farm are insured and no selection is allowed.
- A poultry farm should have a full time veterinary doctor in respect of the following cases when;
(a) Number of hatchery/parent birds is 15,000 and above or proposed sum insured is Tk 20 lacs and above.
(b) In case of layers/broilers, if a farm has more than 50,000 and above birds or proposed sum insured is Tk 20 lacs.
(c) For a firm having 50,000 birds and above.
In other farms with less number of birds, it has to be ensured that adequate veterinary facilities are available and in case of any epidemic, veterinary doctor should supervise the farm round the clock.
- Veterinary soundness certificate from a qualified Veterinary doctor has to be obtained.
- As per policy condition, it is essential for the insured to maintain proper record with regard to daily stock position, feed consumption, medication or vaccination etc. It is also a requirement that the farm is maintained in good condition. It is therefore essential for the underwriting office to ensure that due compliance with policy condition is made not only at the time of acceptance of the risk but random checking of the same should also be carried out at least on fortnight basis if not weekly.
- In case of claim, it will be mandatory to get the loss surveyed and duly examined by the veterinary doctor. In case there is a loss exceeding Tk 25,000, the same should be duly surveyed by an approved firm or licensed surveyor preferably having veterinary doctor(s) as their partners or employees on retainer ship basis.
- Settling claims on weekly basis is highly irregular and the claims must be assessed only after the period of insurance is over or on the basis of provision of excess clause for layers/broilers/hatchery birds after a certain period as provided in the scheme.
- On intimation of a claim, immediate inspection must be carried out and in case of an epidemic, inspection must be carried out by company’s veterinary officer or veterinary doctor on panel on daily basis suggesting the insured various loss prevention measures/medication. Physical counting of the living birds should be done and carcasses should also be verified along with checking the various records.
- While settling the claims, the concerned office should obtain the following documentation without fail:
- Loss intimation
- Claim form
- Daily mortality register
- Treatment certificate
- Vaccination particulars
- Post mortem report
- A cross check should be made with regard to details given in he claims with mortality register of the farm.
- If mortality in epidemic form occurs, daily inspection should be made by the veterinary doctor.
- Those farms where there is persistent heavy loss during last 3 three) years should not be renewed. The cancellation clause should be enforced to cancel policies in force wherever a close monitoring warrants this action.
- As far as possible, birds should be insured with the nearest operational office to enable close monitoring of claims.
- Random checking of records of the insured, prompt intimation of claims and immediate inspection of claims reported are additional measures to control the claims.
- There should be a sound system to collect statistics of premium and incurred claims within reasonable time as this would facilitate prompt remedial measures.
Section: 4 : Insurance of Species
- Brackish water prawn insurance
The brackish water prawn insurance policy covers risks against total loss of prawns, nursed seeds in hatcheries. It is issued to provide insurance cover to those engaged in brackish water prawn farming against total loss of seedlings/prawns of all species raised in brackish waters after being transferred to the firm.It also provides cover to financial institutions to protect their interests and recover loans advanced for such brackish water prawn farming in the event of loss.
- Fish insurance policy
The fish insurance policy indemnifies the insured against total loss due to accident or disease of fry/fingerlonks/fish in ponds, lakes and other still fresh water. This insurance covers death or loss of fish due to disease of any kind, epidemic, parasitic infestation, poisoning, malicious acts by third party. The exclusion among others include loss due to improper management and bad handling, loss due to neglect and carelessness, malicious act, willful injury, error or omission, partial loss of any kind.
(c) Silk worms insurance
The silk worms insurance policy is applicable to mulberry silk worms only of univoltine, bivoltine or multivoltine breed. This insurance covers silk worms from egg stage to cocoon stage. It covers death of silk worm due to accident or disease contracted during the period of insurance. The cover is in respect of total loss only.
(d) Honey bee insurance
The honey bee insurance policy indemnifies the insured against all accidental losses or damages to the hive/or bee colony subject to the exclusion of production, malicious or willful act or neglect or improper management, theft, clandestine sale or missing of worms etc. Risks of theft can be covered on payment of additional premium.
The poor farmers grow food by the sweat of their brow. But it is an irony that those who feed the nation have to starve due to various reasons. Some of the reasons include damage or destruction to crop due to natural calamity beyond their control, infestation by pests etc.
Instead of arranging crop insurance on experimental basis by way of “Pilot Project”, the government should make crop insurance compulsory.
One of the SARC countries namely Sri Lanka has recently imposed compulsory levy on the profit of insurance companies and banks to create a state fund which will go a long way to serving the cause of the farmers.
Bangladesh government should adopt a similar policy and find ways and means to support the livelihood of the poorest segment of the society.
Crop insurance in many countries is subsidized by the state. No doubt it is a huge burden on the government.
Banks, insurance companies and large business organizations have a corporate special responsibility to come forward and join hands with the government in finding necessary funds to help assist helpless farmers from financial distress every year.
The fund thus created can be used for dual purpose namely to pay (1) losses to farmers for failure of crop due to national calamity and (2) financial institutions in case of default of the famers to repay bank loans.
Crop insurance plays an important role in protecting the farmers from the vagaries of nature. In the absence of crop insurance they remain vulnerable and dependent at the mercy of nature.
Mr. Haque was brought up and educated in Dhaka. He obtained his master’s degree with honours in Biochemistry from University of Dhaka (DU). He spent nearly four decades in Dubai (UAE) working for several multinational insurance companies in various capacities. He obtained his Fellowship (FCII) from The Chartered Insurance Institute (CII), London, Associateship (AIRM) from The Institute of Risk Management (IRM), London, Associateship (ACIArb) from The Chartered Institute of Arbitrators (CIArb), London. He has authored several books on insurance which have been acclaimed both at home and abroad. He contributes regularly on insurance matters in various online insurance news portals and is a founder General Secretary of Bangladesh Insurance Professionals Society (BIPS). Presently Mr. Haque is serving as the Director of Sadharan Bima Corporation, Dhaka.