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Is there a demand for flood insurance in Vietnam? Results from a choice experiment

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A Correction to this article was published on 24 January 2022

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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.

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Notes

  1. 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.

  2. The 2011 exchange rate between 1 USD and VND was around 21,000.

  3. http://www.gso.gov.vn/.

  4. 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.

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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).

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Correspondence to Arnaud Reynaud.

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The original online version of this article was revised due to affiliation 3 was missing and included in this version.

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Appendix

Appendix

See Tables 6, 7.

Table 6 Definition of lottery tasks
Table 7 Name and definition of variables used in the empirical application

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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

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