Insurance can help Southeast Asia combat haze, say academics

Compulsory insurance and tax penalties to discourage burning of forests for palm oil plantations

Insurance News

By Gabriel Olano

A pair of academics have proposed an ASEAN-based insurance scheme to control forest fires, the source of the haze that troubles several countries in Southeast Asia, including Indonesia, Malaysia, and Singapore.
The pollution problem is attributed to agricultural fires in Indonesia’s Sumatra and Kalimantan regions. Both companies and individual farmers engage in illegal slash-and-burn practices to clear forests for plantations, usually for palm oil, a multi-billion-dollar industry worldwide.
Christopher Lim and Tamara Nair, both fellows at the S. Rajaratnam School of International Studies of the Nanyang Technological University in Singapore, suggested that ASEAN governments team up with the private sector, including international insurers, to offer insurance policies to palm oil plantations.
The insurance scheme must be made compulsory to all plantations. With this, fires and pollutants released through burning will now have a cost. Any uncontrolled burning will result in a higher premium, therefore hurting the business.
In order to give incentives for plantations to join the system, ASEAN governments can provide plantations a matching grant for premiums, subject to a cap for the first five years. The grant decreases if a plantation company fails to control its burning operations.
The government can also impose additional taxes on plantation owners engaged in deliberate burning of forests and vegetation.  While punitive processes may temporarily cause the price of palm oil to rise, it is expected to stabilize as businesses turn to more ecologically sound practices in order to have competitive prices.
These measures will serve to punish irresponsible firms, while rewarding growers which do not engage in the polluting process of hack-and-slash burning that affects even those in urban areas overseas. This, according to the authors, creates a “win-win” situation for all parties.

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