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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.

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Fig. 1
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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.

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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.

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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
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  2. T. S. Amjath-Babu
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  3. Harald Kächele
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  4. Klaus Müller
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Corresponding author

Correspondence to Azhar Abbas.

Appendix

Appendix

See Table 4 in appendix.

Table 4 Alternative bid structure used for the study
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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

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Keywords

  • Flooding
  • WTP
  • Global warming
  • Instrument
  • Risk