Workshop Report: 2013-66
Weather Index Insurance:
Lessons Learned and Best Practices for
Bangladesh
Workshop Report: 2013-66
Weather Index Insurance:
Lessons Learned and Best Practices for Bangladesh
Authors
Ahmed, T. and Hasemann, A.
This publication should be cited as
Ahmed, T., Hasemann, A. WorldFish. (2013). Weather Index
Insurance: Lessons Learned and Best Practices for Bangladesh
Workshop Report, 8-9 September 2013, Dhaka, Bangladesh.
WorldFish, Penang, Malaysia. Workshop Report: 2013-66.
Acknowledgments
The authors would like to thank Dr. Saleemul Huq, Kevin Kamp,
Helen Greatrex, Melody Braun and Steve Roddick for contributing
to the development of this report.
2
Table of Contents
Adaptation to climate change meets disaster risk reduction.................................................................................................................................................................. 4
Summary..................................................................................................................................................................................................................................................................... 5
Key outcomes from the workshop..................................................................................................................................................................................................................... 6
CIMMYT’s micro-saving insurance product.................................................................................................................................................................................................... 6
Oxfam launches index-based flood insurance.............................................................................................................................................................................................. 6
It’s about the good years....................................................................................................................................................................................................................................... 6
Should index insurance be used to address loss and damage?.............................................................................................................................................................. 6
Who should pay?...................................................................................................................................................................................................................................................... 7
Community fund to cover basis risk.................................................................................................................................................................................................................. 8
Data and index model............................................................................................................................................................................................................................................ 8
Stakeholders – who will champion index insurance in Bangladesh...................................................................................................................................................... 8
Community of practice.......................................................................................................................................................................................................................................... 9
Conclusion.................................................................................................................................................................................................................................................................. 9
References.................................................................................................................................................................................................................................................................. 10
Annex i.......................................................................................................................................................................................................................................................................... 11
3
Adaptation to climate change meets disaster risk
reduction
All countries, whether rich or poor, have suffered from weather-
related hazards and even disasters for centuries, including
hurricanes, cyclones, typhoons, floods, droughts and landslides.
All countries have developed some national mechanisms to
prepare for such disasters and to respond to them after they occur.
Human-induced climate change adds another dimension to this
traditional arena of disaster risk reduction (DRR) by making the
frequency and magnitude of weather-related disasters greater. In
the climate change global policy arena under the United Nations
Framework Convention on Climate Change (UNFCCC), this issue
covers both adaptation to climate change (ACC) and the new,
emerging topic of loss and damage (L+D) from climate change.
Index-based insurance (IBI) is an emerging tool that cuts across
these three arenas; namely, DRR, ACC and L+D. It is in this
spirit that the International Centre for Climate Change and
Development (ICCCAD) at the Independent University, Bangladesh
(IUB), together with WorldFish, undertook an initial scoping study
and then convened a workshop with relevant stakeholders in
Bangladesh to explore the interest in this topic.
We are very pleased with the results of the initial scoping and
the workshop, where a new “community of interest” in IBI was set
up. On behalf of ICCCAD, we are committed to supporting and
facilitating this community of interest and transforming it into a
“community of practice” over time. We hope that this workshop
report will be the start of this community of interest and practice
in IBI.
Saleemul Huq
Director
International Centre for Climate Change and Development,
Independent University, Bangladesh
4
Summary
WorldFish and the International Centre for Climate Change and
Development (ICCCAD) held a two-day workshop on the topic
of Weather Index-Based Insurance: Lessons Learned and Best
Practices for Bangladesh. Weather index insurance is based
on a predefined weather event which when triggered ensures
automatic payout to farmers who have taken out insurance. For
example, the climatic trigger could be a predefined consecutive
number of days where rainfall is below a set level or when the
floodwater level reaches above a certain point. Index insurance
has been operating for about 10 years in many countries but is
still at an early stage in Bangladesh, where there are two schemes
currently being piloted and three other projects being developed.
Further information can be found in the scoping report: Current
Status of Index-Based Insurance in Bangladesh ([Link]
[Link]/resources/publications/scoping-report-
current-status-index-based-insurance-bangladesh), which was
conducted to inform the design and objectives of the workshop.
The aim of the two-day workshop was twofold: to ascertain the
present state of index insurance in Bangladesh and elsewhere,
and to work together to identify ways forward. Day one was
about learning and sharing information, and day two focused on
group work, identifying opportunities, problem solving and ways
to move the index insurance agenda forward. It was essential
that the workshop was action oriented and that as a result of the
workshop the ideas and connections made continued to advance
index insurance in Bangladesh.
The workshop was attended by around 30 participants who are
experts and practitioners in index insurance related activities.
They represent the following organizations:
• Bangladesh Institute of ICT in Development (BIID)
• Bangladesh Meteorological Department (BMD)
• BRAC
• Center for Environmental and Geographical Information
Services (CEGIS)
• Institute of Water Modelling (IWM)
• International Centre for Climate Change and Development
(ICCCAD)
• International Finance Corporation (IFC)
• International Maize and Wheat Improvement Center (CIMMYT)
• Microcredit Regulatory Authority
• Ministry of Water Resources (WARPO)
• North-South University
• Oxfam Bangladesh
• Palli Karma-Sahayak Foundation (PKSF)
• Pragati Insurance Limited
• Sadharan Bima Corporation (SBC)
• The International Research Institute for Climate and Society (IRI)
• World Food Programme (WFP)
• WorldFish
5
For IRI, “it’s about the good years”—and their schemes focus on
Key outcomes from the workshop providing insurance to relax the risk of a bad year and to ensure
• Mapping of the current status of index insurance in that productivity options are unlocked. For a scheme to be
Bangladesh successful, it has to have a solid science base, it must be integrated
• Better understanding of the opportunities and into a wider risk management program, it must ensure that
challenges in implementing index insurance farmers understand basis risk, and it should be designed as simply
• Identification of stakeholders as possible so that it is easily understood by the wide variety of
• First step in forming a community of practice stakeholders involved (farmers, cooperatives, NGOs, insurers,
• Demand for future meetings to share information banks, agronomists, scientists and re-insurers). IRI develops
localized schemes in consultation with farmers. Successful
schemes include the KIlimo Salama project in Kenya/Rwanda
CIMMYT’s micro-saving insurance product and the R4 project Ethiopia/Senegal, which insure a combined
The International Maize and Wheat Improvement Center 50,000 farmers against a lack of rainfall and are part of holistic
(CIMMYT), along with Helmholtz Centre for Environmental risk reduction projects. To date, IRI’s index insurances have been
Research and Crawford School of Public Policy, has recently purchased by tens of thousands of farmers, despite the premiums
started designing a weather index-based micro-saving insurance being unsubsidized.
product for farmers in Southern Bangladesh. The project, which
will be running until April 2014, was presented by Dr. Fred Rossi.
Currently, CIMMYT is testing the financial viability of an insurance
product that insures dry-season crops against flooding from
January to May and also includes savings and credit components.
The specifics of the model and contract are currently being
worked out.
Oxfam launches index-based flood insurance
Oxfam is currently developing a meso-level index-based flood
insurance program in collaboration with the Institute for Water
Management (IWM), CIRM, Pragati Insurance Ltd., Swiss Re, and
Manab Mukti Sangstha (MMS), a local NGO. Mr. Kazi Azam from
Oxfam introduced the project at the workshop and gave an
overview of its modalities. Payouts will be calculated based on
the data from a flood model developed by IWM. Final contracts
between the agency partners were signed in August 2013, and
the product has been successfully launched. The premium is
10.3 percent of the sum insured, with the average insured sum A ‘good’ year
per family being 8000 BDT (approximately 100 USD). The project
currently has 1661 beneficiaries. Should index insurance be used to address loss
and damage?
It’s about the good years
Loss and damage is a newly emerging topic in the global climate
Dr. Helen Greatrex from the International Research Institute for change debate that is rapidly gaining importance. The concern
Climate and Society (IRI) gave a presentation on “Index Insurance with loss and damage stems from the realization that currently
Design and Implementation.” IRI has been instrumental in neither mitigation (i.e., the prevention of greenhouse gases)
developing and introducing index-based insurance and has been nor adaptation (i.e., adapting to the negative impacts of climate
undertaking schemes for 10 years in more than 15 countries in change) efforts are enough to prevent current or future loss and
Africa and Latin America. Dr. Greatrex explained that climate risk damage due to climate change. Loss is generally thought of as
is experienced at two levels—through direct impacts such as the impacts of climate change that cannot be recovered, while
droughts or floods and through the threat of a bad harvest year. damage is characterized as those impacts that can be recovered
It is therefore paramount for farmers to increase productivity (Kreft et al., 2012). While a general definition of loss and damage
in normal years in order to cover losses in bad years. However, has not yet been agreed upon, a working definition is the
strategies that increase productivity, such as buying high-quality “negative effects of climate variability and climate change that
seeds, lead to increased risk. people have not been able to cope with or adapt to” (Warner et al.,
2012).
A range of approaches are required to address loss and damage,
many of which originate in the climate change adaptation
community, such as risk reduction, risk retention, risk transfer and
approaches to slow-onset processes (UNFCCC, 2012). Index-based
insurance, falling under the risk transfer category, is an important
approach that, while not eliminating the risk of loss and damage,
can reduce human suffering and development setbacks that result
from climate change impacts (Ibid).
Dr. Helen Greatrex sharing IRI’s experience of index insurance from
around the world
6
Currently, insurance covers only around 3 percent of disaster are exacerbated by climate change and its impact on loss and
losses in developing countries, compared to 40 percent in damage. Insurance does not prevent or reduce direct losses and
industrialized countries (Warner et al., 2009), which means there damages, for example, and is not always the most cost-effective
is significant potential for growth, with many new markets—such tool for risk management. Moreover, climate change creates
as Bangladesh—emerging. However, insurance as an approach new challenges for insurance, such as potential un-insurability
to addressing loss and damage is controversial, as it is widely due to increased frequency and magnitude of extreme weather
held that the climate vulnerable should not be paying premiums events, and traditional insurance not being suitable for slow-
to insure themselves against impacts for which they are not onset processes such as sea level rise or salinization (Warner et
responsible (Warner et al., 2010; see more below). al., 2009). Ultimately, underlying risk factors such as poverty,
food insecurity, natural resource depletion, etc. will have to be
To effectively address loss and damage, any (index-based) addressed as part of a comprehensive disaster risk management
insurance model should be linked with an ex ante climate risk approach. Insurance products need to be made accessible,
management strategy. Such a risk-layering approach combines affordable, desirable and understandable for low-income and
cost-effective risk reduction aimed at low-impact frequent rural households in the developing world. Consequently, enabling
events with insurance for high-impact, high-frequency events. conditions such as good regulatory frameworks and data bases
Insurance can also create a space of certainty, thus enabling are needed; these enabling conditions require technical and
decision making and reliable provision of public services (Warner financial assistance to assess loss and damage (Khan et al., 2013).
et al., 2012). However, already existing limitations to insurance
A flooded village
Who should pay? This proactive approach gives people agency and often inspires
them to take more risks. Dr. Greatrex mentioned that, for example,
One topic that was continuously debated throughout the workshop
a recent Yale study found that out of farmers who were given a
was the question of who should pay for insurance premiums. Does
choice between insurance and a loan, those who chose insurance
the polluter-pay principle apply here or should farmers pay for
invested more into their farms. A study evaluating IRI’s R4 scheme
themselves and become self-reliant? What about those farmers that
found that farmers who had at the beginning paid for their
do not have the ability to pay? It was stated several times that some
premiums through labor were moving more and more toward
of the money that donors have promised to put toward fighting
paying with cash as the insurance scheme allowed them to amass
climate change from 2020 on should go toward insurance schemes.
more capital.
Interestingly, IRI’s very successful insurance schemes are not Recommendation: Link index insurance with loss and damage
subsidized and target the poorest population groups; that is, those and risk-transfer communities.
without mobile phones. While the cheapest premium option costs
around 3 USD, on average farmers purchase premiums costing
19 USD. This is to some extent made possible by IRI’s projects that
allow farmers to pay partially for premiums with labor and by the
fact that if the insurance is used to encourage people to invest in
more productive technologies, the profits generated in good years
will cover the premium and the losses of the bad years.
Group discussion during the workshop
7
Community fund to cover basis risk of generating index-based flood data and information that is
reliable and accurate. The model was produced using information
Basis risk is the potential mismatch between insurance payout and on river geometry and real-time hydrological data. The flood
actual loss. To reduce the occurrence of basis risk, the insurance model outputs are used for damage assessment and fixation of
product has to be designed using detailed, good-quality data insurance premium and payout schemes.
and tailored to cover different circumstances. However, insurance
cannot cover every scenario; weather events may fall just below Challenges of weather system in Bangladesh
the insurance trigger point or crops may be affected by Usually an area covered by weather index insurance is defined
circumstances not covered by the insurance. Therefore, farmers by the parameters of coverage of a specific weather station.
must have alternative mechanisms to manage impacts not In Bangladesh, agricultural production is affected by weather
covered by index insurance. One option could be a community conditions not only in Bangladesh but also in neighboring
fund, where members of an area pay into a fund which is then countries. For example, the level of rainfall in parts of India affects
used to assist farmers affected by events outside of the insurance the water released by Indian dams on the main rivers, and the
contract. The community will need to decide who will manage this resulting water flow into Bangladesh will affect the moisture in the
fund and set terms for when it will be paid out. soil or the risk of floods. This poses a challenge for index insurance
in Bangladesh: Will data need to be collected from outside of
Data and index model Bangladesh, and if this is not viable, will weather index insurance
not be applicable to these areas?
Meteorological data
The index created to reflect the impact of the weather on crop
yield will only be as reliable and accurate as the quality of the data Stakeholders—who will champion index
input into the system. There are numerous weather conditions insurance in Bangladesh?
that can have an effect on agricultural production, including rain,
temperature, humidity, wind, water salinity, flood water level, During the workshop, an exercise was undertaken to map all the
etc.; however, index insurance usually only focuses on one type stakeholders required to implement index insurance in Bangladesh.
of weather, most commonly the level of rainfall (too much or
too little), temperature, or flood water level, and possibly only The diagram of stakeholders demonstrates that one of the major
during a specific time or season of the year. The Bangladesh challenges facing index insurance in Bangladesh is how to bring
Meteorological Department (BMD) has 35 weather stations the different stakeholders together to work toward successful
throughout Bangladesh and records daily weather information. It implementation. Workshop participants identified the need for
was announced at the workshop by the BMD that there are plans a champion to promote index insurance and to coordinate the
to install approximately 100 more automatic weather stations large number of stakeholders and activities. However, who the
within the next two years. The increased coverage of weather champion should be was undecided.
stations will improve the accuracy of the data and index.
The government and private insurance companies were identified
Agronomic data as the two main stakeholders with leading roles. Without
Agricultural data is also required to understand what time of year government approval and involvement in regulation, index
different products require insurance coverage and when they are insurance will not be viable in Bangladesh. In addition, private
most at risk to weather variables. In addition, the production level insurance companies need to offer index insurance coverage to
for crops is vital to the assessment of the quantities to be insured. farmers. Private insurance companies will only offer index insurance
A major gap identified in agricultural data is that no data exists on if there is profit to be made through a viable business model.
the quantity of crops lost due to weather damage. Although index insurance needs to work as a business, it is
important to note here that the primary purpose of index insurance
Flood modeling is to protect farmers against the uncertainly of climate change,
Mr. Shah-Newaz from the Institute of Water Modelling (IWM) allowing them to transfer risk and avoid falling into poverty.
demonstrated the technical expertise required to produce a Recommendation: ICCCAD and the community of practice to
complex index model. The IWM developed a flood model capable start dialogue with relevant government departments and
with private insurance companies.
Government Private Insurance Companies
To provide regulatory framework and policy Offer an index insurance product that is
• Ministry of Finance beneficial to the insurance company and
• Ministry of Agriculture the farmer
• CDMP
Donors NGOs and MFIs
To provide monetary support at pilot stage (and Collect premiums and distribute payouts as well as
beyond), supporting development of infrastructure Banks communicating information about the insurance
and cost of premium Provide reinsurance scheme to farmers
Data Collectors and Technical Experts
Champion Meteorological and agronomic data to be collected and
To drive the agenda for monitored as inputs to the index model. Farmers
index insurance and to Bangladesh Meteorological Department Insurance policy
coordinate stakeholders • Institute of Water Modeling holders. Consulted on
and activities • Bangladesh Water Development Board development of insurance
• Bangladesh Bureau of Statistics product
• Academic and research institutions
Stakeholder mapping: index insurance key stakeholders in Bangladesh
8
Community of practice be discussed, and challenges can be worked out together.
An online community forum has been created where members
One of the most important outcomes from the workshop is the
can share information and raise questions and discussions. A Web
formation of a community of practice for index insurance in
page with signposting to resources has also been created. The
Bangladesh. Workshop participants agreed that while index
Web page contains all the presentations from the workshop as
insurance is at an early stage in Bangladesh, it is beneficial for all
well as links to relevant reports.
involved to have a forum where progress can be shared, ideas can
Stakeholder mapping
• Recommendation: Form a community of practice to continue discussions and keep updated on index insurance
developments in Bangladesh.
• Recommendation: Workshop participants and other stakeholders to reconvene in 2014 to discuss progress made within their
organizations, including reporting on pilot projects.
Conclusion
The workshop highlighted that there is a great deal of interest
around weather index insurance in Bangladesh. The challenge
is now to cultivate that enthusiasm within the participants’
organizations, to engage other stakeholders and to work together.
Without collaborations between government, private insurance
companies, technical experts, NGOs, farmers, and others, index
insurance cannot progress to large-scale implementation.
Many opportunities exist to apply index insurance in Bangladesh.
There are plans to improve the collection of weather data, there
is an existing network of NGOs with good rural reach, and
Bangladesh already has a history of and familiarity with
microfinance. However, there are challenges: the complex weather
system, the fatalistic culture of farmers in accepting the impacts
of weather events, and the need to develop a business model that
will attract private insurance companies. All of these challenges
will become manageable if there is dialogue and engagement
with the relevant organizations and communities. This is
something that the community of practice can begin to address.
9
References
Khan, M. R., Roddick, S., and E. Roberts (2013). Assessing Microinsurance as a Tool to Address Loss and Damage in the National Context of
Bangladesh. Dhaka: International Centre for Climate Change and Development.
Kreft et al. (2012) Framing the loss and damage debate: A thought starter by the Loss and Damage in Vulnerable Countries Initiative [online]
Available at: [Link]
UNFCCC (2012). A literature review on the topics in the context of thematic area 2 of the work programme on loss and damage: a range of
approaches to address loss and damage associated with the adverse effects of climate change FCCC/SBI/2012/INF.14.
Warner, K., Ranger, N., Surminksi, S., Arnold, M., Linneroth-Bayer, J., Michel-Kerjan, E. Kovacs, P., and C. Herweijer (2009). Adaptation to Climate
Change: Linking Disaster Risk Reduction and Insurance. Geneva: UNISDR.
Warner, K., Zissener, M., Kreft, S., Höppe, Bals, C., Linnerooth-Bayer, J., Haas, A., Gurenko, E., Loster, T. and I. Burton (2010) Solutions for Vulnerable
Countries and People: Designing and Implementing Disaster Risk Reduction and Insurance for Adaptation [online] Available at:
[Link]
Warner et al. (2012) Insurance solutions in the context of climate change-related loss and damage: Needs, gaps, and roles of the Convention in
addressing loss and damage. Munich Climate Insurance Initiative (MCII) submission to the SBI Work Programme on Loss and Damage,
October 2012. Policy Brief No. 6. Bonn: United Nations University Institute for Environment and Human Security (UNU-EHS).
10
Annex i
Workshop Participants
Name Organization
Arun Kumar Saha Asian Development Bank (ADB) (retired)
Ruhun Wasata Bangladesh Institute of ICT in Development (BIID)
Sumaiya Nour Bangladesh Institute of ICT in Development (BIID)
Md. Shameem Hassan Bhuiyan Bangladesh Meteorological Department (BMD)
Taslim Reza BRAC
Anwar Ali Center for Environmental and Geographical Information Services (CEGIS)
Saniruzzaman Suvo Center for Environmental and Geographical Information Services (CEGIS)
Sardar M Shah-Newaz Institute of Water Modelling (IWM)
Anna Hasemann International Centre for Climate Change and Development (ICCCAD)
Saleemul Huq International Centre for Climate Change and Development (ICCCAD)
Tajbee Ahmed International Centre for Climate Change and Development (ICCCAD)
Tariq Mohsen International Centre for Climate Change and Development (ICCCAD)
Saiyab Amal Ahmed International Finance Corporation (IFC)
Frederick Rossi International Maize and Wheat Improvement Center (CIMMYT)
Muhammed Mazedul Haque Microcredit Regulatory Authority
Mohammad Alamgir Ministry of Water Resources (WARPO)
Mizan Khan North-South University
Kazi NMN Azam Oxfam Bangladesh
M. Shazzadul Karim Palli Karma-Sahayak Foundation (PKSF)
Zahir Uddin Ahmed Palli Karma-Sahayak Foundation (PKSF)
Mamunul Hassan Pragati Insurance Limited
Md. Abdus Salam Sadharan Bima Corporation (SBC)
Md. Amir Hossain Mia Sadharan Bima Corporation (SBC)
Tauhiduddin Md Zahed Sadharan Bima Corporation (SBC)
Helen Greatrex The International Research Institute for Climate and Society (IRI)
Malik Kabir World Food Programme (WFP)
Omar Farook World Food Programme (WFP)
Kevin Kamp WorldFish
Khondker Murshed-e-Jahan WorldFish
Melody Braun WorldFish
Workshop participants
11
This publication should be cited as: Ahmed, T., Hasemann, A. WorldFish. (2013). Weather Index Insurance: Lessons Learned and Best Practices for
Bangladesh Workshop Report, 8-9 September 2013, Dhaka, Bangladesh. WorldFish, Penang, Malaysia. Workshop Report: 2013-66.
Photo credits: Front and back cover, CBFM-Fem Com Bangladesh and Jharendu Pant Printed on 100% recycled paper.
© 2013. WorldFish. All rights reserved. This publication may be reproduced without the permission of, but with acknowledgment to, WorldFish.
Contact Details:
WorldFish, PO Box 500 GPO,
10670 Penang, MALAYSIA
Web: [Link]
International Research Institute
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