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Is there a commercially viable market for crop insurance in rural Bangladesh?

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Abstract

The study aims to assess the commercial viability of a potential crop insurance market in Bangladesh. In a large scale household survey, agricultural farm households were asked for their preferences for a hypothetical crop insurance scheme using double bounded (DB) contingent valuation (CV) method. Both revenue and production cost based indemnity payment approaches were applied to assess the commercial viability of a crop insurance program assuming a partner-agent (PA) model of insurance supply. Crop insurance is found marginally commercially viable in riverine flood plain areas. The expected indemnity payable consistently exceeds the expected insurance premium receivable by the insurer for the households living in wetland basin and coastal floodplain. We conclude that a uniform structure of crop insurance market does not exist in Bangladesh. The nature of the disaster risks faced by the farm households and the socio-economic characteristics of the rural farm communities need to be taken into careful consideration while designing such an insurance scheme.

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Notes

  1. Rice is the prime agricultural crop in Bangladesh.

  2. Water logging is an outcome of faulty design of the embankment and poor maintenance of the drainage systems within the embankment.

  3. The exchange rate used here is 65 taka per US $.

  4. For example, for an area that suffers from natural disaster risk once every 5 years, number of payments (n in Eq. 2) equals to 260.

  5. See Akter et al. (2008a) for a more detailed demand analysis of micro-insurance in Bangladesh.

  6. For a more detailed supply side analysis of micro-insurance provision in Bangladesh see Akter et al. (2008b).

Abbreviations

CV:

Contingent valuation

DB:

Double bounded

DC:

Dichotomous choice

\(\frac{I}{P}\) :

Indemnity and insurance premium ratio

PA:

Partner agent

WTP:

Willingness to pay

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Acknowledgement

The work presented in this paper is part of the Poverty Reduction and Environmental Management (PREM) program in Bangladesh funded by the Dutch Ministry of Foreign Affairs. We gratefully acknowledge the heartiest cooperation of the following organizations at various stages of this research: Bangladesh Water Development Board, Climate Change Cell at Department of Environment, Flood Forecasting and Warning Center in Bangladesh, Water Resource Planning Organization and Geographic Information System cell in Local Government Engineering Department.

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Authors and Affiliations

  1. Crawford School of Economics and Government, The Australian National University, Canberra, ACT, 2601, Australia

    Sonia Akter

  2. Institute for Environmental Studies (IVM), Vrije Universiteit, Amsterdam, The Netherlands

    Roy Brouwer

  3. Department of Economics, BRAC University, Dhaka, Bangladesh

    Saria Choudhury

  4. Department of Economics, North South University, Dhaka, Bangladesh

    Salina Aziz

Authors
  1. Sonia Akter
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  2. Roy Brouwer
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  3. Saria Choudhury
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  4. Salina Aziz
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Correspondence to Sonia Akter.

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Akter, S., Brouwer, R., Choudhury, S. et al. Is there a commercially viable market for crop insurance in rural Bangladesh?. Mitig Adapt Strateg Glob Change 14, 215–229 (2009). https://doi.org/10.1007/s11027-008-9161-6

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  • DOI: https://doi.org/10.1007/s11027-008-9161-6

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