Innovative crop insurance program by BoP has come of age

KHALID BUTT, Bureau Chief, Lahore
Dec 11 - 17, 2006

Hamesh Khan, the dynamic President of Bank of Punjab is upbeat about the phenomenal success of the unique crop insurance introduced by the bank in conjunction with East West Insurance Co. Ltd in Pakistan. In an interview with PAGE, he talked about the remarkable initiative taken on the direction of Punjab Chief Minister Pervaiz Ellahi, which in over two years has taken firm roots and proved a blessing for the farmers during various natural calamities. He attributed the success to the personal interest and support of the Chief Minister and the guidance of President Musharraf, who were both keen to ensure that there was adequate safeguard available to the farmers against any calamity or unforeseen circumstances which in the past were nothing short of a national catastrophe. In a country like Pakistan with a predominant agrarian economy such a situation was simply untenable, he added.

He said that innovative crop insurance was among the many firsts introduced by BOP since he took over his present assignment. It was certainly growing and has shown the way to others as in the past the other banks had normally shied away from taking on risks of providing a comprehensive cover to the farmers. Finally the issue has also been taken up by the SBP to set up a committee to look into the issue of other banks for not focusing on this crucial issue of crop insurance, says the youthful Moazzam Maneka, the Chief Manager of Agriculture Credit Department in BOP. He told PAGE that BOP had set a fine precedent with its unique scheme to cover all risks compared to anything offered by other banks.

Pervez Yunus, the Executive Director of East West Insurance Co. told PAGE that crop insurance was a most challenging undertaking considering the frequent risks involved in natural calamities, which resulted in total loss of the crop. The issue was also saddled with heavy overheads of not only guarantying immediate settlement of claims but also the burden of heavy administrative costs of survey incurred to assess the liabilities after any calamity. He said that total number of policies registered during the current year till November was nearly 5300 with a total premium of Rs. 14.30 million. During the current year the total claims of losses filed were 458, of which 312 had already been expeditiously settled. The farmers' claims amounted to Rs. 10.40 million. He said during last year two major calamities were declared in Punjab due to heavy rains and hailstorm in May and July, which were handled expeditiously and settled. In the current year, three major calamities had been declared in Punjab. Early this year due to drought calamity was declared in District Jauharabad and Khushab and later due to frostbite. In monsoon season Qamarmasahni, Kot Adu, Layyah, D.G. Khan etc, were hit by flood and heavy rainfall. 55 cases were settled early this year and further 383 cases are in process of settlement and are expected to be settled at a figure of around Rs. 4.5 million.

He said the scheme has taken firm roots and gradually the farmers are convinced of its utility and many benefits. He hopes it would cast its desired impact to reckon crop insurance as the most essential requirement for farmers in future to establish its credentials for good. Crop farming is exposed to vagaries of nature, such as floods, droughts, hailstorms, windstorm etc. that are largely beyond the farmer's control. Uncertainty of crop yield is thus one of the basic risks, which every farmer has to face. A serious crop failure means not only the loss of farmer's income but it also wipes out his investment in the crop. In such cases, the farmer is faced with acute difficulties in rehabilitation.

Crop insurance is an effective device for providing much needed financial protection to farmers against crop losses through natural calamities. In view of the above, East West Insurance (EWI) has been a staunch advocate for introducing a Crop Insurance (CI) programme in the country. Realizing the extraordinary significance of agriculture sector in the economy of Pakistan and in the lives of the overwhelming majority of its population, its late founder chairman was ideologically committed to extend the benefits of insurance protection, generally available to trade & industry in Pakistan, to this sector also. Consequently, right from its incorporation, EWI has taken an active interest and advocated on various platforms for the introduction of crop insurance program for the benefit of the farmers.

The Bank of Punjab had taken the initiative to offer the crop calamity insurance program. It was indeed a history making occasion when BoP in collaboration with East West Insurance Company and Metropolitan Life Assurance Co. of Pakistan Ltd. (covering the life risk of the borrower), officially announced the introduction of crop insurance scheme for their farmer borrowers on 22nd July 2004, in Lahore. The chief guest for the launching ceremony was none other than the Punjab Chief Minister, Ch. Pervaiz Ellahi, who is giving top priority to the agriculture sector in Punjab, through his various historic initiatives. The crop insurance scheme announced by the Bank of Punjab is intended to insure bank loans advanced to its farmer borrowers with an upper limit of 5 lacs in each case. Under the scheme losses exceeding 25% shall be payable by the insurer to the bank if and when a certain area affected by floods, drought, pests etc. is declared by the government as a calamity stricken area. In this way an element of sharing of risk between the insured and insurer has been carefully worked out to make the success of the scheme adequately protected by the principle of mutual and collective sharing of the losses according to the basic spirit of Shariah.

"Since the amount payable under a claim shall be utilized to repay the outstanding loan of the insured farmer, it will ensure his future debt carrying capacity with the bank. Since it is a pioneering effort in this field we at East West Insurance Company along with the Bank of Punjab are working hard together to make it a success. We are confident that InshaAllah we will succeed in this venture," a spokesman of East West Insurance told PAGE in an interview.