FE Report
A regulatory framework for weather index-based crop insurance is at the final stage to help develop the insurance product, an economist of the Asian Development Bank has said.
The framework comprising rules, regulations and guidelines is important for enabling and supporting the development of such a product in the country.
Economist of the ADB M Golam Mortoza disclosed this at a workshop Saturday in Dhaka.
The weather index-based crop insurance project of the state-owned Shadharan Bima Corporation (SBC) organised the workshop.
Basix, an Indian consulting firm, prepared the framework incorporating the international best practices of the insurance products.
After incorporating the latest views, the framework will be sent to the ministry of finance for its approval, said Mr Mortoza whose bank is the major funder of the project.
If approved, all insurers may launch such type of insurance product in the country.
Weather index-based insurance is an approach to managing weather and climate-risk because it uses a weather index such as rainfall to determine payouts and this can be made more quickly than conventional crop insurance in other countries.
The project, which will close in June, has been piloting the product in three districts-Rajshahi, Sirajganj and Noakhali-since March 2014.
Chairman of the Insurance Development and Regulatory Authority Md Shafiqur Rahman Patwari joined the programme as the chief guest.
Corporation chairman Shibli Rubayat-ul-Islam presided over the inaugural session.
Additional secretary of the Financial Institutions Division Arijit Chowdhury also spoke at the session.
Corporation managing director Syed Shahriyar Ahsan delivered the welcome address at the function.
The framework suggests introducing certain quota for insurance companies so that they have an obligation for introducing the specific product in the country.
It argues that such obligation will speed up the insurance penetration into the country.
The framework said introducing social obligation and imposing heavy penalties on insurance companies in case of failure would result in growth and development of the rural insurance market including crop and index insurance.
The draft said the maximum insured or total pay-out in the contract should not be specified in the regulations because of the damage or losses intended to be covered would be difficult to assess.
It said such type of products should be exempted from paying value added tax.
The framework said the insurers must specify the source of data used to determine the index values and if the source of the data is the insurers' own or from an independent source.
If the regulatory agency determines that the data of calculation of the index value is not independent or reliable enough then it may require the insurer to appoint an independent body or person who will available to verify the accuracy of data or index, according to the draft.
As the index will be more accessible to the insurer than the policyholders, payment should be made without the need for a policyholder to lodge a claim, it said.
It recommends the regulator set out an escalation mechanism for the dispute or grievance resolution.
The draft lays importance on protecting consumers' interests.
It also said there was a need for separate guidelines on quality control of data form automatic weather stations.
Project director Wasiful Haque presented a brief overview of the project at the workshop.
However, the insurance regulator asked all stakeholders to provide more views to the draft available on the IDRA's official website.
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