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Dhaka Tribune

A safeguard for a risky business

How crop insurance can help farmers recover after extreme weather events

Update : 10 May 2019, 12:34 AM

As an agrarian country in a deltaic environment, Bangladesh relies on floods and the fertility of its soil to produce its annual grain requirement. 

But crop losses due to floods and other natural calamities are a recurring phenomenon which disrupts the entire economy of the country. For example, early monsoon floods, late onset of floods, and other climate variations impact food production and quality of life significantly. 

In addition to the dislocation of cropping practices, large populations have historically suffered greatly due to unanticipated climate events that are typical in Bangladesh. When monsoons are delayed and crops fail as a result, farmers often don’t know how to pay back the debts they have taken on to purchase seeds. 

These fates are a shocking reminder of a global problem caused by global warming. Farming has always been a gamble, but the growing number of “unusual weather events,” as experts call them, makes seeding and harvesting an even riskier business. For example, in India more than 15,000 farmers commit suicide every year when they fail to pay the debts they owe.

“Climate change stands as a stress test for insurance, the world’s largest industry with $4.6 trillion in revenues, 7% of the global economy,” writes Evan Mills, a scientist at the Lawrence Berkeley National Laboratory at the University of California (Berkeley). The industry now pays an average of $50 billion a year in weather and climate-related insurance losses, including property damage and business disruptions, Mills writes in a policy forum article in the journal Science. Such claims have been doubling every decade since the 1980s.

Insurance industry representatives from the United States, Europe, and Asia have been working with scientists on the Intergovernmental Panel on Climate Change since the 1990s to better understand their exposure to risks associated with rising global temperatures. 

Members of the industry have taken a lead role in raising public awareness of global warming, supporting climate research, and mounting efforts to reduce greenhouse gas emissions by making their own operations more energy efficient, and through their investments in managing a $25tn portfolio. 

Many insurers are now using climate science to better quantify and diversify their exposure, more accurately price and communicate risk, and target adaptation and loss-prevention efforts. 

They also analyze their extensive databases of historical weather and climate-related losses, for both large and small-scale events. But insurance modeling is a distinct discipline. Unlike climate models, insurers’ models extrapolate historical data rather than simulate the climate system, and they require outputs at finer scales and shorter time frames than climate models.

Many countries have already implemented crop insurance programs. In most cases, these are all sponsored by the government. However, complementary to the federal (government) crop insurance programs, very recently some climate insurance company (ie, the Climate Corporation, a start-up based in Silicon Valley) started a new type of “climate insurance program” that is likely to reduce farmers’ financial risks by crossing agriculture with the IT industry’s latest trend: Big Data (ie, seasonal climate data). 

They call it “Total Weather Insurance” (TWI). TWI is the full-season insurance program that enables farmers in the US to protect their potential profits by insuring against adverse weather events that can cause yield shortfalls.  

TWI’s unique Farm-Level Optimizer provides precision coverage based on crop, field location, soil type, and relative maturity of seed planted. They collect all kinds of information -- including on weather patterns, climate trends and soil characteristics -- and analyze the data down to an individual field. 

These insights are then used to offer farmers tailored insurance policies against the damage from extreme weather events. Premiums for the TWI plans depend on crop and location. 

On average, they cost about 3% of the land’s revenue. In case of extreme weather at the wrong time of the season, the insurance company pays out a portion of the damaged crops (roughly about $300 per acre). 

In contrast to existing government schemes, farmers don’t have to prove actual losses. Payouts are triggered automatically without paperwork when the firm’s data show that writing a check is justified.

There are talks floating in Bangladesh about this crop insurance program. The government has taken an initiative to introduce agriculture insurance through state-owned general insurance company “Shadharan Bima Corporation” for small and medium farmers. 

This is a praise-worthy initiative indeed. However, complementary to “Shadharan Bima Corporation,” the policy-makers in Bangladesh may also think to gradually implement the TWI programs, as this could be one of the viable alternatives to help minimize the sufferings of the farmers during any climate extremes. 

In order to make TWI instrumental in Bangladesh, what is needed is better comprehension of seasonal climate variability and change (ie, El Niño/La Niña based climate outlook is an option), and improved translation of this information into products and their coordination with the ground level. 

Like in many other countries, I hope that the TWI will soon be instrumental in Bangladesh to protect the farmers against climate hazards. 

Md Rashed Chowdhury is the Principal Research Scientist of the Pacific ENSO Applications Climate Center (PEAC), University of Hawaii, USA.

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