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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

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  • Azhar Abbas
  • T. Amjath-Babu
  • Harald Kächele
  • Klaus Müller

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. Copyright Springer Science+Business Media Dordrecht 2015

Suggested Citation

  • Azhar Abbas & T. Amjath-Babu & Harald Kächele & Klaus Müller, 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," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 75(3), pages 2119-2135, February.
    • Handle: RePEc:spr:nathaz:v:75:y:2015:i:3:p:2119-2135
    DOI: 10.1007/s11069-014-1415-x
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    5. Ashfaq Ahmad Shah & Jingzhong Ye & Muhammad Abid & Jahangir Khan & Syed Muhammad Amir, 2018. "Flood hazards: household vulnerability and resilience in disaster-prone districts of Khyber Pakhtunkhwa province, Pakistan," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 93(1), pages 147-165, August.
    6. Rashed Saeed & Waqas Ali & Abdul Majeed Nadeem, 2023. "Weather Induced Risks, Mitigation Strategies and Farmers’ Willingness to Participate in Flood Insurance Scheme in Punjab, Pakistan," Journal of Economic Impact, Science Impact Publishers, vol. 5(1), pages 15-21.
    7. Aftab, Ashar & Ahmed, Ajaz & Scarpa, Riccardo, 2021. "Farm households' perception of weather change and flood adaptations in northern Pakistan," Ecological Economics, Elsevier, vol. 182(C).
    8. Dilshad Ahmad & Muhammad Afzal, 2019. "Household vulnerability and resilience in flood hazards from disaster-prone areas of Punjab, Pakistan," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 99(1), pages 337-354, October.
    9. Martínez-García, Víctor & Martínez-Paz, José M. & Alcon, Francisco, 2022. "The economic value of flood risk regulation by agroecosystems at semiarid areas," Agricultural Water Management, Elsevier, vol. 266(C).
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    11. Budhathoki, Nanda Kaji & Lassa, Jonatan A. & Pun, Sirish & Zander, Kerstin K., 2019. "Farmers’ interest and willingness-to-pay for index-based crop insurance in the lowlands of Nepal," Land Use Policy, Elsevier, vol. 85(C), pages 1-10.
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