Bangladesh should take ‘total weather insurance’

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 that 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 dislocation of crop practices, large populations have historically suffered greatly in part because of 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 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.

“Climate change stands as a stress test for insurance, the world’s largest industry, with US$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. 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 in the United States, Europe and Asia have been working with scientists on the Intergovernmental Panel on Climate Change since the 1990s to improve their understanding of 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 $25 trillion portfolio.

Many insurers are now using climate science to help 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 government crop insurance programs, very recently The Climate Corporation, a startup based in Silicon Valley, started a new type of insurance program that is likely to reduce farmers’ financial risks by crossing agriculture with the IT industry’s latest trend: big data – that is, seasonal climate data.

It is called total weather insurance. TWI is a 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. The firm collects all kinds of information – including on weather patterns, climate trends and soil characteristics – and analyzes 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 crop damage (roughly $300 per acre, or $740 per hectare). 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 the initiative of introducing agriculture insurance through state-owned general insurance company Shadharan Bima Corporation for small and medium-sized farmers. This is a praiseworthy initiative.

However, as complementary to Shadharan Bima Corporation, the policymakers in Bangladesh may also think about gradually implementing TWI programs, as this could be one of the viable alternatives to help minimize the sufferings of 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 (an El Niño/La Niña–based climate outlook is an option), and improved translation of this information into products and their coordination to the ground level. It is worth considering TWI as a way to protect Bangladeshi farmers against climate hazards.