In climate vulnerable countries like Bangladesh, traditional mechanisms for coping with disasters, such as borrowing from relatives, selling property, using microcredit and savings are often inadequate. In the decades ahead, climate change will bring losses and damages that will challenge the coping ability of many low-income populations. Approaches to address these residual losses and damages will need to be developed and implemented alongside mitigation and adaptation strategies to reduce the impacts of climate change. Along with structural measures to address the impacts of climate change, non-structural initiatives like microinsurance are being discussed as risk management strategies to address climate change-related loss and damage. This paper provides a critical review of the microinsurance landscape in Bangladesh by examining microinsurance research and projects, the current and potential demands for microinsurance and gaps in policy and institutional frameworks. The paper then outlines a set of recommendations for how policies can be improved to widen the microinsurance market and how microinsurance products can be designed to reach wider segments of poor and vulnerable communities across the country – and address loss and damage to an array of climate change impacts. The conclusion is that microinsurance, customised to the specific needs of the poor, can be an effective instrument for addressing loss and damage.
Research on microinsurance has only recently begun over the past few years and data and information on the existing profile of microinsurance activities are still very limited. The overwhelming share of microinsurance activities, largely initiated by non-government organisation microfinance institutions (NGO-MFIs), predominantly deal with loan and life insurance products for micro borrowers, followed by health insurance. In the absence of appropriate expertise and a regulatory regime conducive to growth, microinsurance activities have proceeded in a disorganised manner. This was evident in absence of any uniformity in product designs, types, and modalities of available microinsurance schemes through NGO-MFIs.
Recognising this regulatory void, the Government of Bangladesh (GoB) established the Microcredit Regulatory Authority (MRA), the Insurance Development Regulatory Authority (IDRA) and the Insurance Act of 2010. The Palli Karma Shahayak Foundation (PKSF), a semi-government MFI coordination body, has developed a draft microinsurance Policy for MFIs that spells out, in detail, the mechanisms through which MFIs should conduct microinsurance activities. However, the draft policy does not have any provisions for or references to microinsurance activities undertaken by private insurers. Moreover, the draft does not have any provisions for public-private or MFI-private insurer partnerships for promoting microinsurance.
In view of the above, the paper recommends expanding the existing microinsurance market to make microinsurance more inclusive of low-income groups, designing products that are tailored to the socioeconomic and cultural realities of the country, establishing regulations to facilitate collaborative relationships between MFI-NGOs and private insurers, and facilitating reinsurance for microinsurance schemes at both the national and global levels.
Mizan R. Khan*, Stephen Roddick** and Erin Roberts**
*Professor, Department of Environmental Science & Management (DESM), North South University (NSU), Dhaka, Bangladesh. Currently,
Visiting Scholar, Brown University, USA.
**Visiting researchers at the International Centre for Climate Change and Development.