Skip to main content

Non-structural flood risk mitigation under developing country conditions: an analysis on the determinants of willingness to pay for flood insurance in rural Pakistan

Natural Hazards volume 75, pages 2119–2135 (2015)Cite this article

Abstract

The present study aims at unraveling the acceptability and potential of flood insurance as a viable mechanism to cope the financial risk associated with flood events in rural Pakistan. Moreover, the factors influencing rural households’ willingness to pay for flood insurance are also analyzed. Currently, the country faces an increasing rate of flooding due to climate change phenomenon resulting in abnormal monsoonal cycles and the melting of Himalayan glaciers in the region. The current flood management strategy of the country mainly involves ex-post relief and rehabilitation programs along with financial transfers to the flood victims from public funds without the involvement of private insurance companies. This puts enormous pressure on the public exchequer, leading to budgetary adjustments and tax escalation. Under such a scenario, flood insurance is thought to be a viable alternative to mitigate the financial risk associated with the catastrophic events like the flood that occurred in 2010. The study utilized primary level data from five districts in Pakistan to evaluate the willingness to pay for flood insurance as well as the factors affecting that willingness by using contingent valuation methodology. The results show that the acceptability of this intervention among flood victims depends on a multitude of factors such as the age of the household head, landownership, off-farm income sources and a preconception concerning the effectiveness of flood insurance. Moreover, rural families’ readiness to pay an insurance premium is not significantly influenced by perceived risk of flooding but by their financial position.

This is a preview of subscription content, access via your institution.

Access options

Buy single article

Instant access to the full article PDF.

USD 39.95

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Fig. 1
Fig. 2

Notes

  1. Pakistan has two distinct cropping seasons, namely Rabi and Kharif that usually last for 6 months each. Generally, floods hit Pakistan during the Kharif season when rice, cotton, sorgham (fodder), mung (pulse) and sugarcane are grown.

References

  • Afroz R, Hanaki K, Hasegawa-Kurisu K (2009) Willingness to pay for waste management improvement in Dhaka city, Bangladesh. J Environ Manag 90:492–503

    Article  Google Scholar 

  • Ahmed T (2013) Current status of index-based insurance in Bangladesh. WorldFish, Penang, Malaysia. Project Report: 2013 (38)

  • Akter S, Brouwer R, Choudhury S et al (2009) Is there a commercially viable market for crop insurance in rural Bangladesh? Mitig Adapt Strateg Glob Change 14:215–229

    Article  Google Scholar 

  • Akter S, Brouwer R, van Beukering PJH et al (2011) Exploring the feasibility of private micro flood insurance provision in Bangladesh. Disasters 35(2):287–307

    Article  Google Scholar 

  • Atta-ur-Rahman, Khan AN (2013) Analysis of 2010-flood causes, nature and magnitude in the Khyber Pakhtunkhwa, Pakistan. Nat Hazards 66:887–904

    Article  Google Scholar 

  • Azam K, Yussof RBM, Khan A (2012) The role of coping capacities in disaster perspective: a case of Pakistan flash floods, 2010. Int J Sust Dev 4(3):109–126

    Google Scholar 

  • Bhutto AW, Bazmi AQ (2007) Sustainable agriculture and eradication of rural poverty in Pakistan. Nat Resour Forum 31:253–262

    Article  Google Scholar 

  • Bockstael NE, Hanemann WM, Kling CL (1987) Estimating the value of water quality improvements in a recreational demand framework. Water Resour Res 23(5):951–960

    Article  Google Scholar 

  • Bolch T, Kulkarni A, Kääb A et al (2012) The state and fate of Himalayan glaciers. Science 336:310–314

    Article  Google Scholar 

  • Botzen WJW, van den Bergh JCJM (2008) Insurance against climate change and flooding in the Netherlands: present, future and comparison with other countries. Risk Anal 28(2):413–426

    Article  Google Scholar 

  • Botzen WJW, van den Bergh JCJM (2009) Bounded rationality, climate risks, and insurance: is there a market for natural disasters? Land Econ 85(2):265–278

    Google Scholar 

  • Botzen WJW, van den Bergh JCJM (2012) Risk attitudes to low-probability climate change risks: WTP for flood insurance. J Econ Behav Organ 82:151–166

    Article  Google Scholar 

  • Botzen WJW, Aerts JCJH, van den Bergh JCJM (2009) Willingness of homeowners to mitigate climate risk through insurance. Ecol Econ 68:2265–2277

    Article  Google Scholar 

  • Botzen WJW, de Boer J, Terpstra T (2013) Framing of risk and preferences for annual and multi-year flood insurance. J Econ Psychol 39:357–375

    Article  Google Scholar 

  • Bradford RA, O’Sullivan JJ, van der Craats IM et al (2012) Risk perceptions: issues for flood management in Europe. Nat Hazards Earth Syst Sci 12(7):2299–2309

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • Burn DH (1999) Perceptions of flood risk: a case study of the Red River flood of 1997. Water Res Res 35(11):3451–3458

    Article  Google Scholar 

  • CDKN (2012) Country snapshot-Pakistan. Climate and Development Knowledge Network, Islamabad

    Google Scholar 

  • Clark DE, Novotny V, Griffin R et al (2002) Willingness to pay for flood and ecological risk reduction in an urban watershed. Water Sci Technol 45(9):235–242

    Google Scholar 

  • Cook ER, Palmer JG, Ahmed M et al (2013) Five centuries of upper Indus River flow from tree rings. J Hydrol 486:365–375

    Article  Google Scholar 

  • Cooper JC (1999) Referendum CVM programmes. Economics Research Service, USDA, Washington, DC

    Google Scholar 

  • Dawson RJ, Ball T, Werritty J et al (2011) Assessing the effectiveness of non-structural flood management measures in the Thames Estuary under conditions of socio-economic and environmental change. Glob Environ Chang 21(2):628–646

    Article  Google Scholar 

  • Dilley M, Chen RS, Deichmann U et al (2005) Natural disaster hotspots: a global risk analysis. World Bank and Columbia University, Washington, DC

    Book  Google Scholar 

  • FFC (2012) Annual flood report 2012. Federal Flood Commission, Government of Pakistan, Ministry of Water and Power, Islamabad-Pakistan

    Google Scholar 

  • Fuks M, Chatterjee L (2008) Estimating the willingness to pay for a flood control project in Brazil using the contingent valuation method. J Urban Plan Dev 134(1):42–52

    Article  Google Scholar 

  • Glenk K, Fischer A (2010) Insurance, prevention or just wait and see? Public preferences for water management strategies in the context of climate change. Ecol Econ 69(11):2279–2291

    Article  Google Scholar 

  • Hanemann WM, Loomis JB, Kanninen BJ (1991) Statistical efficiency of double-bounded dichotomous choice contingent valuation. Am J Agric Econ 73(4):1255–1263

    Article  Google Scholar 

  • Hartmann H, Andresky L (2013) Flooding in the Indus River basin-a spatiotemporal analysis of precipitation records. Glob Planet Chang 107:25–35

    Article  Google Scholar 

  • Hirabayashi Y, Mahendran R, Koirala S et al (2013) Global flood risk under climate change. Nat Clim Change 3:816–821

    Article  Google Scholar 

  • Immerzeel WW, Beek LPH, Bierkens MFP (2010) Climate change will affect the Asian water towers. Science 328:1382–1385

    Article  Google Scholar 

  • Kabat P, van Vierssen W, Veraart J et al (2005) Climate proofing the Netherlands. Nature 438(7066):283–284

    Article  Google Scholar 

  • Kazi A (2014) A review of the assessment and mitigation of floods in Sindh, Pakistan. Nat Hazards 70(1):839–864

    Article  Google Scholar 

  • Kitamura R, Yoshii T, Yamamoto T (2009) The expanding sphere of travel behavior research. Emerald Group Publishing, UK

    Google Scholar 

  • Kousky C (2011) Understanding the demand for flood insurance. Nat Hazards Rev 12(2):96–110

    Article  Google Scholar 

  • Krausmann E, Mushtaq F (2008) A qualitative Natech damage scale for the impact of floods on selected industrial facilities. Nat Hazards 46:179–197

    Article  Google Scholar 

  • Kundzewicz ZW (2002) Non-structural flood protection and sustainability. Water Int 27(1):3–13

    Article  Google Scholar 

  • Leichenko RM, Wescoat JL (1993) Environmental impacts of climate change and water development in the Indus delta region. Int J Water Resour Dev 9(3):247–261

    Article  Google Scholar 

  • Linnerooth-Bayer J, Mechler R, Pflug G (2005) Refocusing disaster aid. Science 309:1044–1046

    Article  Google Scholar 

  • Loureiro ML, Mccluskey JJ, Mittelhammer RC (2002) Will consumers pay a premium for eco-labeled apples? J Consum Aff 36(2):203–219

    Article  Google Scholar 

  • Michel-Kerjan EO, Kousky C (2010) Come rain or shine: evidence on flood insurance purchases in Florida. J Risk Insur 77(2):369–397

    Article  Google Scholar 

  • NDMA (2013) National disaster risk reduction policy. National Disasters Management Authority, Ministry of Climate Change, Govt. of Pakistan: Islamabad

  • Park T, Loomis BJ, Creel M (1991) Confidence interval for evaluating benefits estimates from dichotomous choice contingent valuation studies. Land Econ 67(1):64–73

    Article  Google Scholar 

  • PMD (2012) Climate change in Pakistan: focused on Sindh province. Pakistan Meteorological Department, Research and Development Division, P.O. Box 1214, Islamabad

  • ProVention/IIASA (2006) Disaster insurance for the poor? A review of microinsurance for natural disaster risk in developing countries

  • Rafiq L, Blaschke T (2012) Disaster risk and vulnerability in Pakistan at a district level. Geomat Nat Hazards Risk 3(4):324–341

    Article  Google Scholar 

  • Schmidt S, Nüsser M (2012) Changes of high altitude glaciers from 1969 to 2010 in the Trans-Himalayan Kang Yatze Massif, Ladakh, Northwest India. Arct Antarct Alp Res 44:107–121

    Article  Google Scholar 

  • Seifert I, Botzen WJW, Kreibich H, Aerts CJH (2013) Influence of flood risk characteristics on flood insurance demand: a comparison between Germany and Netherlands. Nat Hazards Earth Syst Sci 13(7):1691–1705

    Article  Google Scholar 

  • Spence A, Poortinga W, Butler C et al (2011) Perception of climate change and willingness to save energy related to flood experience. Nat Clim Change 1:46–49

    Article  Google Scholar 

  • Thieken AH, Petrow T, Kreibich H et al (2006) Insurability and mitigation of flood losses in private households in Germany. Risk Anal 26(2):383–395

    Article  Google Scholar 

  • Trenberth KE (2011) Changes in precipitation with climate change. Clim Res 47:123–138

    Article  Google Scholar 

  • Trenberth KE, Fasullo J, Smith L (2005) Trends and variability in column-integrated atmospheric water vapor. Clim Dyn 24:741–758

    Article  Google Scholar 

  • UN (2011) Pakistan floods: one year on 2011. A Report by the United Nations–Pakistan, Islamabad. http://unportal.un.org.pk/sites/unpakistan/pages/default.aspx. Accessed 7 Aug 2013

  • UNDP (2004) Reducing disaster risk: a challenge for development. United Nations Development Programme, Bureau for crisis prevention and recovery, New York: 146

  • van Schoubroeck C (1997) Legislation and practice concerning natural disasters and insurance in a number of European countries. Geneva Pap Risk Insur 83:238–267

    Google Scholar 

  • Webster PJ, Toma VE, Kim H-M (2011) Were the 2010 Pakistan floods predictable? Geophys Res Lett 38(4)

  • Yao T, Thompson L, Yang W et al (2012) Different glacier status with atmospheric circulation in Tibetan plateau and surroundings. Nat Clim Chang 2:663–667

    Google Scholar 

  • Zhai G, Suzuki T (2008) Effects of risk representation and scope on willingness to pay for reduced risks: evidence from Tokyo Bay, Japan. Risk Anal 28(2):513–522

    Article  Google Scholar 

  • Zhai G, Sato T, Fukuzono T et al (2006) Willingness to pay for flood risk reduction and its determinants in Japan. J Am Water Resour As 42(4):927–940

    Article  Google Scholar 

Download references

Acknowledgments

We would like to thank the Higher Education Commission of Pakistan for the financial support of this project. Our thanks are also due to the German Academic Exchange Service (DAAD) for the logistical support provided, and to Stiftung Fiat Panis for their financial support during data collection. We highly acknowledge the valuable comments and suggestions by the two anonymous reviewers. The cooperation of survey respondents is also highly appreciated.

Author information

Authors and Affiliations

  1. Leibniz Centre for Agricultural Landscape Research (ZALF), Eberswalder Str. 84, 15374, Müncheberg, Germany

    Azhar Abbas, T. S. Amjath-Babu, Harald Kächele & Klaus Müller

  2. University of Agriculture, Faisalabad, 38040, Pakistan

    Azhar Abbas

Authors
  1. Azhar Abbas
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. T. S. Amjath-Babu
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Harald Kächele
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Klaus Müller
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Azhar Abbas.

Appendix

Appendix

See Table 4 in appendix.

Table 4 Alternative bid structure used for the study
Full size table

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Abbas, A., Amjath-Babu, T.S., Kächele, H. et al. 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, 2119–2135 (2015). https://doi.org/10.1007/s11069-014-1415-x

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11069-014-1415-x

Keywords

  • Flooding
  • WTP
  • Global warming
  • Instrument
  • Risk