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Determinants of Participation in a Catastrophe Insurance Programme: Empirical Evidence from a Developing Country

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Author Info

  • Akter, Sonia
  • Brouwer, Roy
  • Chowdhury, Saria
  • Aziz, Salina

Abstract

The paper presents empirical evidence of the determinants of catastrophe insurance participation in one of the poorest and most disaster prone countries in the world. In a large-scale household survey carried out in 2006 we ask 3,000 residents in six different districts in Bangladesh facing various environmental risk exposure levels about their willingness to participate in a catastrophe insurance programme. Combining factors put forward in risk theory and economics, we estimate a model of insurance participation. We show that the household decision to participate in the insurance programme differs depending on both exogenous and endogenous risk exposure levels. As predicted by micro-economic theory, ability to pay, measured in terms of household income and access to credit, significantly affects insurance participation. Furthermore, among the sociodemographic factors investigated in this case study, respondent education and occupation are found to significantly influence household decision making. Our study suggests that low participation rates for catastrophe insurance in a developing country can be explained by high rates of illiteracy and limited access to credit.

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Bibliographic Info

Paper provided by Australian Agricultural and Resource Economics Society in its series 2008 Conference (52nd), February 5-8, 2008, Canberra, Australia with number 5984.

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Date of creation: 2008
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Handle: RePEc:ags:aare08:5984

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Keywords: Natural disasters; catastrophe; insurance; participation; risk; Bangladesh; Consumer/Household Economics; Environmental Economics and Policy; International Development; Risk and Uncertainty; Q54;

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References

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  1. Warren Kriesel & Craig Landry, 2004. "Participation in the National Flood Insurance Program: An Empirical Analysis for Coastal Properties," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(3), pages 405-420.
  2. Brookshire, David S, et al, 1985. "A Test of the Expected Utility Model: Evidence from Earthquake Risks," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 369-89, April.
  3. Khandker, Shahidur R., 2003. "Microfinance and poverty - evidence using panel data from Bangladesh," Policy Research Working Paper Series 2945, The World Bank.
  4. Xavier Giné & Robert Townsend & James Vickery, 2007. "Statistical Analysis of Rainfall Insurance Payouts in Southern India," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(5), pages 1248-1254.
  5. Lara D. Shore-Sheppard & John C. Ham, 2003. "The Effect of Medicaid Expansions for Low-Income Children on Medicaid Participation and Private Insurance Coverage : Evidence from the SIPP," Department of Economics Working Papers 2003-10, Department of Economics, Williams College.
  6. Goes, Anne & Skees, Jerry R., 2003. "Financing Natural Disaster Risk Using Charity Contributions And Ex Ante Index Insurance," 2003 Annual meeting, July 27-30, Montreal, Canada 22188, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  7. Philip Ganderton & David Brookshire & Michael McKee & Steve Stewart & Hale Thurston, 2000. "Buying Insurance for Disaster-Type Risks: Experimental Evidence," Journal of Risk and Uncertainty, Springer, vol. 20(3), pages 271-289, May.
  8. Neil Adger, W., 1999. "Social Vulnerability to Climate Change and Extremes in Coastal Vietnam," World Development, Elsevier, vol. 27(2), pages 249-269, February.
  9. Lewis, Tracy & Nickerson, David, 1989. "Self-insurance against natural disasters," Journal of Environmental Economics and Management, Elsevier, vol. 16(3), pages 209-223, May.
  10. Steven C. Blank & Jeffrey McDonald, 1996. "Preferences for crop insurance when farmers are diversified," Agribusiness, John Wiley & Sons, Ltd., vol. 12(6), pages 583-592.
  11. Dong, Weimin & Shah, Haresh & Wong, Felix, 1996. "A Rational Approach to Pricing of Catastrophe Insurance," Journal of Risk and Uncertainty, Springer, vol. 12(2-3), pages 201-18, May.
  12. Barry J. Barnett & Jerry R. Skees, 1995. "Region and Crop Specific Models of the Demand for Federal Crop Insurance," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 18(2), pages 47-65.
  13. Colin F. Camerer & Howard Kunreuther, 1989. "Decision processes for low probability events: Policy implications," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 8(4), pages 565-592.
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Cited by:
  1. Eling, Martin & Pradhan, Shailee & Schmit, Joan T., 2013. "The Determinants of Microinsurance Demand," Working Papers on Finance 1308, University of St. Gallen, School of Finance.
  2. Sonia Akter & Roy Brouwer & Saria Choudhury & Salina Aziz, 2009. "Is there a commercially viable market for crop insurance in rural Bangladesh?," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 14(3), pages 215-229, March.

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