From left: IPS Research Economist Kanchana Wickramasinghe, IPS Research Fellow Manoj Thibbotuwawa, IPS Research Fellow Athula Senaratne and International Water Management Institute Water-related Disaster Risk Management Sub Theme Leader Giriraj Amarnath Pic by Kithsiri de Mel
By Chandeepa Wettasinghe
Amid reports that two thirds of the main Maha season paddy crops this year have been destroyed due to weather anomalies, the state-run policy think tank,Institute of Policy Studies (IPS), called for index-based climate insurance products to be developed for Sri Lanka’s farmers.
“Index-based climate insurance is technically feasible in Sri Lanka, but can it be implemented?” IPS Research Economist Kanchana Wickramasinghe who conducted the study ‘Climate Insurance for Dry Zone Farmers in Sri Lanka’ questioned, while explaining her discoveries. The study had been funded by the Global Development Network, after Wickramasinghe won the First Prize in the Japanese Award for Outstanding Research on Development in 2014 for her research proposal.
IPS Executive Director Dr. Saman Kelegama noted that the development of index-based climate insurance has been long overdue in
Sri Lanka.
Colombia University Earth Institute International Research Institute for Climate and Society Financial Instruments Sector Team Lead Scientist Dr. Daniel Osgood, who delivered the keynote address through Skype, said that he is “very positive about the potential for successful index-based insurance in
Sri Lanka”.
According to the findings of the research, which was conducted in Anuradhapura, just 1 percent of the farmers in the country’s dry zone have voluntarily subscribed to crop insurance, while Central Bank statistics show that just 4 percent of the country’s paddy cultivated area has
crop insurance.
There are currently two indemnity-based crop insurance products provided by the state’s Agriculture and Agrarian Insurance Board and the country’s largest private sector insurance company Ceylinco Insurance, both of which had collected premiums of Rs. 418.97 million in 2015, but paid just Rs. 36.54 million in indemnities.
A compulsory insurance had been provided to almost all farmers under the now-discontinued fertilizer subsidy scheme, which Wickramasinghe said had not been implemented properly.
However, she noted that Sanasa Insurance has piloted a subsidized index-based climate insurance product, which has been successful in tea growing areas, but is progressing slowly in paddy growing regions.
Experts questioned whether private insurance companies would be willing to expand into this area, given that Sri Lanka has experienced more years with dysfunctional weather patterns than normal in recent times. “(We) need to see if there is willingness from the private insurance companies or the government insurance providers to go for these (index-based) type of insurance,” Wickramasinghe replied.
Index-based climate insurance relies on data collected through methods such as satellite imagery and rain gauges to compensate farmers as soon as within a week, which saves the farmer of the trouble of having to prove damages under indemnity insurance, where claims could drag on for years. Due to a lack of insurance, the farmers who already depend heavily on jewellery pawning to finance their daily operations, have to resort to further pawning to cover losses during a bad season, according to the study.
Insurance companies in attendance said that they had not penetrated the crop insurance market in the past due to the lack of information and ability to prove claims.
Janashakthi Group Chairman Chandra Schaffter, who was in the audience, said that index-based climate insurance is “scientific and near-perfect” and called on the government to subsidize and promote such insurance by following the example in India.
“If you expect a farmer to pay premiums worth 8-10 percent of his crop, no farmer will insure himself,” he said.
He added that if farmers continue to be trapped in climate-induced debt cycles, their children would move out of agriculture. Such a pattern could threaten President Maithripala Sirisena’s vision to make Sri Lanka self-sufficient in agriculture.
During the 3rd quarter of 2016, approximately 27 percent of Sri Lanka’s labour market was engaged in agriculture, contributing 7.6 percent to the country’s gross domestic product. However, according to the IPS study, 34 percent of farmers are not aware of insurance products, while 31 percent believe that insurance is only for large scale agricultural operations.
Further, issues have also arisen due to the lack of trust in insurance agents, some of whom have cheated farmers, or failed to provide comprehensive information regarding the limits of the coverage of insurance products, according to Wickramasinghe. IPS Research Fellow Manoj Thibbotuwawa added that farmers prefer to pay premiums at the post office or at Samurdhi Banks, instead of dealing with insurance agents. International Water Management Institute Water-related Disaster Risk Management Sub Theme Leader Giriraj Amarnath added that farmers in India prefer to pay premiums on their climate insurance seasonally than monthly. He further added that Indian farmers pay 2 percent out of the 10 percent insurance premium, while the government subsidizes the remaining 8 percent, with bids being called for private sector companies to provide the insurance product.
“But for that, there needs to be cooperation between the Finance Ministry and the Agriculture Ministry,” he said.
