Swiss Contact holds workshop on climate change and the importance of microinsurance

Over 40% of Bangladesh's population is directly or indirectly involved in agriculture, including crops, livestock, and fisheries. The sector is severely impacted by climate change: excessive rainfall, flooding, erratic rainfall patterns, extreme heat, and other natural anomalies are hampering productivity and jeopardising farmers' financial security.

Microinsurance can serve as a crucial tool in addressing these issues. Continuous improvements in product design and innovations in last-mile delivery mean that microinsurance schemes are becoming increasingly effective in protecting against financial risk faced by targeted population segments. These factors have drawn professionals and entrepreneurs to the sector, each with his/her unique experience and views. 

Tanvir Rahman Dhaly is the inclusive finance and insurance head (Southeast Asia and Bangladesh) for KMD, a UK-based innovative risk solutions provider. KMD has been active in worldwide efforts to utilise microinsurance in response to emerging climate risks. Dhaly points out that sporadic, early, or late rainfall increases the risk of reduced yields, leading to long-term losses. This is especially worrying since most Bangladeshi farmers are neither aware of nor prepared for climate change.

In this context, microinsurance is an indispensable solution for farmers. Ensuring the effectiveness of microinsurance requires collaboration between the public and private sectors. Dhaly emphasises that government involvement is crucial for sustainable advances in this regard. Bangladesh is the seventh most vulnerable country in terms of climate-change risk; market-driven microinsurance can play a significant role, mainly if an optimised and forward-looking policy environment can be ensured.

He also highlights that microinsurance offers financial security and builds trust among farmers in the government, marking it as a transformative step toward stronger government-farmer relationships.

Md. Mahmudur Rahman, CEO of the agri-tech platform WeGro, explains that farmers can appreciate its benefits when they are insured with a small amount of just 2,000 Taka. Such microinsurance offers crucial protection in the face of climate change or natural disasters.

Bangladesh may not be a significant contributor to climate change, but it is definitely one of the most vulnerable to it. In recent floods, Bangladesh incurred an estimated BDT 14 billion in losses sustained by the fisheries sector alone. Small-scale insurance schemes can ease the burden on the government's disaster relief fund and large-scale disaster insurance mechanisms.

Rahman says that agriculture's percentage contribution to GDP may be decreasing, but not so the market potential of microinsurance. In this regard, investments by private insurance companies are essential for sustaining growth in the sector.

Bangladeshi farmers rely heavily on predatory lenders, family loans and liquidation of precious savings to cope with financial risks. Offering them tailored insurance schemes can keep them away from destructive coping strategies. Utilizing technology to provide insurance services to farmers can enhance their capacity to manage risks, by ensuring more accessible and effective microinsurance solutions.

Swisscontact's BMMDP project's Deputy Team Leader, Naba Nashit Tareque, notes that the project has promoted human-centred product design and innovative approaches to last-mile delivery. Swisscontact has supported various innovative microinsurance products, contributing to claim payouts for over 150,000 farmers.

She cites evidence from the project's first five years to explain that farmers were clearly willing to pay. But that's not all. Tareque says that BMMDP's work also establishes that private insurers could operate profitably and sustainably in the microinsurance market.

Green Delta Insurance's Head of Impact Business, Shubasish Barua, notes that insurance penetration in Bangladesh is below 1%. This figure is even lower for inclusive insurance, at 0.9 per cent. However, nearly 45 million people are indirectly associated with insurance through microfinance institutions.

Barua says that simply selling insurance does not build farmers' trust. Green Delta Insurance (GDIC) provides bundled, value-added services such as crop advisory, weather forecasts, and smart agriculture. The bundling choices are guided by user/customer feedback.

Over the past five years, Green Delta Insurance has reached 3.3 million farmers, and in the last three years, over 150,000 farmers have received claims amounting to BDT 160 million. This has significantly improved farmers' trust in complex financial products like insurance. Additionally, technology plays a crucial role in enhancing this trust.

Typically, insurance companies receive complaints from customers. But GDIC has flipped this on its head by reaching out to farmers. This has resulted in increased farmer engagement. Timely claims settlement has also helped GDIC gain its customers' trust.

In this way, GDIC has expanded its portfolio through customer-centricity, value-added services, and technology. Their success also sets examples for other insurance companies venturing into microinsurance.