A new insurance scheme in which pre-determined flood thresholds trigger speedy compensation offers hope for poor people in flood-prone Bangladesh, experts say.
“Floods adversely impact the ability of the poor to earn a livelihood both by destroying assets and limiting opportunities for labour,” said Snehal Soneji, Oxfam International’s Bangladesh country director.
“This [insurance] product is index-based and operates at the meso-level, which means that payout is triggered on the basis of a certain threshold being reached resulting in immediate payout without the long process of surveying and then payout,” he explained, referring to traditional insurance schemes that rely on time-consuming damage assessment surveys to determine compensation.
According to a 2012 article in the journal Applied Economic Perspectives and Policy, “index insurance indemnifies the insured based on the observed value of a specified `index’ or some other closely related variable… [and] the most widely used index in index insurance contract designs is rainfall.”
A 2013 scoping report by the Malaysia-based research organization World Fish and a consortium of environment and agricultural agencies argued: “With current and anticipated increases in magnitude of extreme weather events and a declining consistency in weather patterns…there has been a growing interest in weather index-based insurance schemes in Bangladesh.”
Norul Amin, economic and private sector coordinator at Oxfam-Bangladesh, told IRIN: “There is strong demand for financial disaster recovery mechanisms, not only among the poor communities, but also insurance sector, donor agencies, micro-finance institutes and government officials.”
Inspired by a successful pilot with 1,661 households in 14 villages of northern Sirajganj District, Oxfam is expanding the index flood insurance programme across three districts of Sirajganj, Gaibandha and Barguna.
Index insurance is a relatively new concept in Bangladesh. But the immediacy of the relief could be a boon for poor communities, experts said.
Saleemul Huq, senior fellow in the Climate Change Group at the London-based International Institute for Environment and Development, explained: “If it is a weather based index insurance then the advantage is that there should be a payout when a certain pre-agreed threshold is crossed rather than assessing damages after an event in traditional insurance. The insured get paid quickly when the money is most useful.”
However, Huq warns, Bangladesh’s varied rainfall will pose some conceptual challenges to the model.
“The challenge is that, Bangladesh being flood prone, it would be difficult to agree on the flood threshold to trigger payments,” he said. “It will need to be tested over time - it’s too early to say if it is going to be comprehensively viable.”
Payouts linked to water levels
The insurance plan is designed so that if water levels cross a certain locally-determined threshold and stay for 11 days, a household will get 2,800 taka (US$36); if floods stay for 21 days, the household receives 4,400 taka ($56); and at 26 days, 8,000 taka ($103).
Sohel Khan, a programme officer at the Sirajganj-based NGO Manab Mukti Sangstha, said the NGO took care to explain the benefits of insurance during the pilot, and got a positive response.
“When we first approached the villages, the people did not understand how insurance can help them overcome flood damage but as we [explained it more], they loved it,” he explained.
“The 14 villages are in flood prone areas and most of the people are poor. During any flood, they become workless which causes trouble to their everyday lives. People told us that they feel secured after they are under the flood scheme,” Khan said.
Index-based insurance schemes, including some that use satellites to monitor grazing conditions for farmers in Kenya, have been used elsewhere to bolster resilience.
The Asian Disaster Preparedness Centre, ranks Bangladesh as one of the most disaster-prone countries in the world. More than two-thirds of the country’s 64 districts are prone to natural disasters, including cyclones, floods, landslides, tornadoes and drought. Data from the International Disaster Database show. Two hundred and thirty-four disaster events (68 of which were floods) between 1980 and 2010 killed nearly 200,000 people. Disasters cost the country more than half a billion US dollars per year.