3.1 Basic concept of Weather Index Insurance: Though the idea of index insurance is not new but weather index insurance is a very new and innovative concept in Bangladesh. Recently, weather index insurance (WII) became an interesting tool to insure rural farmers from weather-related risk in developing countries. The main idea of weather index insurance is simple. When a certain determined weather index is high (flood) or below (drought) with specific predetermined threshold insurance gives indemnity payment to the policyholder. Basically, weather index insurance is such a tool that helps to reduce the risk of the production for the farmers from climate shocks and climate change. “Index insurance is a financial product linked to an index highly correlated to local yields. Contracts are written against specific perils or events (example-area yield loss, drought, hurricane, flood) that are defined and recorded at regional levels (example-at a local weather station)” In these days, researchers and development agencies have been experimenting and exploring the opportunities of using weather index insurance to reduce the risk of poor people in the rural areas. By using this product, farmers may get indemnities on the realization of a weather index that measures a specific variable of weather for example rainfall or temperature, measured at a specific weather station over a specified time period. But weather index insurance doesn’t cover the actual losses experienced by the policyholder. (Barnett, B.J. and Mahul, O., p.3) World Bank has successfully piloted some of the projects of weather index insurance in some developing countries like Malawi, Mongolia and India. In India, weather-based insurance products is implemented by one of the MFIs and stated-owned bank. (IFC).
3.2 Weather risk in Agriculture and different types Weather risk in agriculture mostly depends on the diverse issues and the impact of climate change. It is really difficult to make a common platform to understand this. It depends on from agricultural orientation to the fertility power of soil and crop, variability of water to irrigation process, poor drainage system to lack of managerial competency.
4.1 Relationship between weather and production: Weather and production has a direct correlation between each other because agricultural production is highly dependent on the weather. In the extreme cases when flood, windstorm or drought happens, those may cause serious damage of agricultural production. From the early stage to final stage of production means product life cycle, different natural supports are needed. Extreme weather could damage any one part of the production phase which would ultimately destroy the production of the final product. Sometimes damages could be measured personally but in most cases it is really difficult to make sure about the weather incidents and damage together. Sometimes the relationship between two variables could be found easily when there is regular weather event. But some other important factors also influence the production of agriculture like pest and disease which causes crop losses. When partial or full irrigation is happening, less strong relationship is there. In some places where rainfall is more and seasonally less traced in that case relationship might be less easy to establish. However, droughts are also a symbol of tropical crop production where in the same year flood and drought could happen. So considering all these issues, making a point on realization is risky. (The World Bank, 2011).
5. Challenges of implementing weather index insurance In Bangladesh, there are lot of challenges could be faced for implementing weather index-based insurance because literacy of this product is very limited and people are away from insurance for its bad reputation. By the way, one challenge would be to properly initiate the index-based insurance as it is new and special expertise is needed for research and effective product development, orient the internal organizational staff, insurance agents and at the same time building awareness and building capacity to farmers or customers would be difficult one. Besides that reaching to the rural areas would be another challenge as because of the shortage of infrastructure or local institutions or even building partnerships. For doing so, the operational cost could be higher than expected which also lead to limit the scale of the implementation of the weather index insurance products. Meanwhile, collecting premium on timely as well as using technology to reduce cost would be other challenges. For the insurance companies, could have needed reinsurance support from other institutions and managing this could be challenging. Setting the technology near to cultivate areas and protect themselves from theft, developing automated weather stations, satellite data for rainfall insurance, ensuring quality data and make farmers understand the real data etc. are some of other challenges could be faced by insurers. But it is true that without government support nothing could be done properly. For educating the government officials and stimulating their mindset to implement this insurance is really important. In the implementation phase primary government may come out with the help of subsidy to make it possible and help the vulnerable farmers from all the possible risks of weather changes. The strategic steps of starting weather index insurance in a country like finding stakeholders and sponsors for piloting, stress given on insuring crops and regions, gathering recent data on weather, emphasize on including an expert in the process of judging weather behavior, practices of farmers as well as crop modeling, focusing on structuring pilot with stakeholders, initiate to lunch products as well as reinsure the risk.