Abstract
Vietnam is one of the countries most affected by floods. Despite high exposure to this risk and repeated calls from international organizations, the penetration rate of flood insurance remains surprisingly low in Vietnam. We investigate if there is a demand for flood insurance by Vietnamese households using a choice experiment. We compute households’ willingness to pay (WTP) for various flood insurance programs and we identify the relationships between WTP and the different attributes of insurance schemes (type of risk covered, level of coverage, insurance provider, billing frequency, insurance premium). We first show that Vietnamese households exhibit a strong preference for the status quo option (no insurance). We do, however, document significant and positive WTP for some flood insurance policies, especially those covering health expenses. We show that household trust in institutions providing flood insurance policies may help understand the currently low adoption rate. Finally, we stress the high degree of heterogeneity in household preferences for flood insurance policies: past experience with flooding, individual risk preferences and subjective flood risk perception matter to understand WTP for flood insurance. These results call for a very careful design of flood insurance mechanisms in Vietnam, and more generally in developing countries subject to high risks of natural disasters.
Similar content being viewed by others
Change history
24 January 2022
A Correction to this paper has been published: https://doi.org/10.1007/s10018-022-00340-2
Notes
The questionnaire includes two CE. The first CE, which aims at assessing the willingness of Vietnamese households to pay for flood risk reduction, has been analyzed in Reynaud and Nguyen (2016). We focus here on the second CE dedicated to flood insurance.
The 2011 exchange rate between 1 USD and VND was around 21,000.
The flood costs reported by households correspond to a subjective assessment. It may be that, when reporting their costs, subjects overestimate or underestimate their real flood expenses for strategic reasons or simply because this information is not easily available. Moreover, they do not include non-monetary costs such as those related to anxiety or distress. The flood costs reported here should therefore be treated with caution.
References
Abbas A, Amjath-Babu TS, Kächele H, Müller K (2015) Non-structural flood risk mitigation under developing country conditions: an analysis on the determinants of willingness to pay for flood insurance in rural Pakistan. Nat Hazards 75(3):2119–2135
Adamowicz W, Boxall P, Williams M, Louviere J (1998) Stated preference approaches for measuring passive use values: choice experiments and contingent valuation. Am J Agric Econ 80(1):64–75
Atreya A, Ferreira S, Michel-Kerjan E (2015) What drives households to buy flood insurance? New evidence from Georgia. Ecol Econ 117:153–161
Botzen W, van den Bergh J (2012) Monetary valuation of insurance against climate change risk. Int Econ Rev 53(3):1005–1026
Brouwer R, Akter S (2010) Informing micro insurance contract design to mitigate climate change catastrophe risks using choice experiments. Environ Hazards 9(1):74–88
Brouwer R, Tinh BD, Tuan TH, Magnussen K, Navrud S (2014) Modeling demand for catastrophic flood risk insurance in coastal zones in Vietnam using choice experiments. Environ Dev Econ 19:228–249
Browne MJ, Hoyt RE (2000) The demand for flood insurance: empirical evidence. J Risk Uncertain 20(3):291–306
Bubeck P, Botzen WJW, Aerts JCJH (2012) A review of risk perceptions and other factors that influence flood mitigation behavior. Risk Anal 32(9):1481–1495
Cai J, Song C (2017) Do disaster experience and knowledge affect insurance take-up decisions? J Dev Econ 124:83–94
Cameron L, Shah M (2015) Risk-taking behavior in the wake of natural disasters. J Hum Res 50(2):484–515
Cole S, Giné X, Tobacman J, Topalova P, Townsend R, Vickery J (2013) Barriers to household risk management: evidence from India. Am Econ J: Appl Econ 5(1):104–135
Duong PB, Izumida Y (2002) Rural development finance in Vietnam: a microeconometric analysis of household surveys. World Dev 30(2):319–335
Eckel C, Grossman P (2002) Sex differences and statistical stereotyping in attitudes toward financial risk. Evol Hum Behav 23(4):281–295
Fatti CE, Patel Z (2013) Perceptions and responses to urban flood risk: Implications for climate governance in the South. Appl Geogr 36:13–22
Few R, Tran P, Hong B (2004) Living with the floods: health risks and coping strategies of the urban poor in Vietnam. Research report for the British Academy (Committee for South East Asian Studies)
Ganderton PT, Brookshire DS, McKee M, Stewart S, Thurston H (2000) Buying insurance for disaster-type risks: experimental evidence. J Risk Uncertain 20(3):271–289
Grothmann T, Reusswig F (2006) People at risk of flooding: why some residents take precautionary action while others do not. Nat Hazards 38:101–120. https://doi.org/10.1007/s11069-005-8604-6
Handel BR, Kolstad JT (2015) Health insurance for “humans”: information frictions plan choice, and consumer welfare. Am Econ Rev 105(8):2449–2500
Harrison G, Rutström (2008) Risk aversion in the laboratory. Risk aversion in experiments. In: Cox JC, Harrison GW (ed) Research in experimental economics, vol 12. Emerald Group Publishing Limited, Bingley, pp 41–196
Hausman J, McFadden D (1984) Specification tests for the multinomial logit model. Econometrica 52(5):1219–1240
Holt CA, Laury SK (2002) Risk aversion and incentive effects. Am Econ Rev 92(5):1644–1655
Hoyos D (2010) The state of the art of environmental valuation with discrete choice experiments. Ecol Econ 69(8):1595–1603
Hudson P, Botzen WW, Czajkowski J, Kreibich H (2017) Moral hazard in natural disaster insurance markets: empirical evidence from Germany and the United States. Land Econ 93(2):179–208
Hussain A, Weisaeth L, Heir T (2011) Psychiatric disorders and functional impairment among disaster victims after exposure to a natural disaster: a population based study. J Affect Disord 128(1–2):135–141
Krinsky I, Robb AL (1986) On approximating the statistical properties of elasticities. Rev Econ Stat 68(4):715–719
Kunreuther H (1996) Mitigating disaster losses through insurance. J Risk Uncertain 12(2/3):171–187
Mai CV, Stive MJ, VanGelder PH (2009) “Coastal protection strategies for the red river delta.” J Coast Res:105–116
Navrud S, Tuan TH, Tinh BD (2012) Estimating the welfare loss to households from natural disasters in developing countries: a contingent valuation study of flooding in Vietnam. Glob Health Action 5:17609
Petrolia DR, Landry CE, Coble KH (2013) Risk preferences, risk perceptions, and flood insurance. Land Econ 89(2):227–245
Ren J, Wang HH (2016) Rural homeowners willingness to buy flood insurance. Emerg Mark Financ Trade 52(5):1156–1166
Reynaud A, Nguyen M-H (2016) Valuing flood risk reductions. Environ Model Assess 21(5):603–617
Samuelson W, Zeckhauser R (1988) Status quo bias in decision making. J Risk Uncertain 1:7–59
Scarpa R, Willis KG, Acutt M (2007) Valuing externalities from water supply: status quo, choice complexity and individual random effects in panel kernel logit analysis of choice experiments. J Environ Plan Manag 50(4):449–466
Seifert I, Botzen WJW, Kreibich H, Aerts JCJH (2013) Influence of flood risk characteristics on flood insurance demand: a comparison between Germany and the Netherlands. Nat Hazards Earth Syst Sci 13(7):1691–1705
Street DJ, Burgess L, Louviere JJ (2005) Quick and easy choice sets: constructing optimal and nearly optimal stated choice experiments. Int J Res Mark 22(4):459–470
Train KE (2009) Discrete choice methods with simulation. Cambridge University Press, Cambridge
Turner G, Said F, Afzal U (2014) Microinsurance demand after a rare flood event: evidence from a field experiment in Pakistan. Geneva Pap Risk Insur—Issues Pract 39(2):201–223
USSH (2002) Perception of people on environmental sanitation in Mekong River Delta: Fact and Solutions. Unpublished report, Department of Geography, University of Social Sciences and Humanities, Hochiminh City
Van Minh H, Anh TT, Rocklöv J, Giang KB, Trang LQ, Sahlen K-G, Nilsson M, Weinehall L (2014) Primary healthcare system capacities for responding to storm and flood-related health problems: a case study from a rural district in central Vietnam. Glob Health Action 7(1):4–14
WorldBank (2005) Natural disaster hotspots: a global risk analysis. Disaster Risk Management Series No. 5, Hazard Management Unit, The World Bank, Washington, D.C
WorldBank (2010) Weathering the storm: options for disaster risk financing in Vietnam. The World Bank, Washington, D.C
Acknowledgements
The authors would like to thank Mr. Nhung Nguyen from the Vietnamese Ministry of Agriculture and Rural Development for his patience when explaining the organization of flood protection in Vietnam and in the Nghe An Province. We also thank Thanh Duy Nguyen for his very efficient assistance during the field work. We are also grateful to Richard Carson and all participants at the Environmental Economics Lunch Seminar at UC San Diego for their valuable comments. This research is funded by Vietnam National Foundation for Science and Technology Development (NAFOSTED) under Grant number 502.01-2016.18 (project ECO-EROSION-VIET).
Author information
Authors and Affiliations
Corresponding author
Additional information
The original online version of this article was revised due to affiliation 3 was missing and included in this version.
Electronic supplementary material
Below is the link to the electronic supplementary material.
About this article
Cite this article
Reynaud, A., Nguyen, MH. & Aubert, C. Is there a demand for flood insurance in Vietnam? Results from a choice experiment. Environ Econ Policy Stud 20, 593–617 (2018). https://doi.org/10.1007/s10018-017-0207-4
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10018-017-0207-4