Menu ENN Search

Feasibility of private micro flood insurance provision in Bangladesh

Summary of research1

Women head for a nearby flood shelter established by the government in Bangladesh

A recent paper describes a study to test the viability of a flood insurance scheme in Bangladesh where a large proportion of the population regularly confronts livelihood and house property damage risks due to catastrophic events. Weather-related risk is a major cause of rural income fluctuations in Bangladesh. Impact assessments carried out by the Intergovernmental Panel on Climate Change identify Bangladesh as one of the world's worst victim countries in terms of the negative impacts of climate change.

In the study, a mixed quantitative-qualitative research approach was followed. In a large-scale rural household survey carried out between August and October 2006, 2,400 floodplain residents were asked about their demand for different forms of insurance schemes (crop damage, house property and unemployment insurance schemes). The households were in five districts located along the three major rivers in Bangladesh. Household willingness to pay was estimated and compared with expected indemnity payouts by insurance providers, within the framework of two different models of micro-insurance supply. The qualitative assessment was based on semistructured interviews and a workshop with decision-makers in private insurance companies, micro-finance institutions and non-governmental organisations (NGOs) to investigate the viability of private insurance provision in Bangladesh.

Natural disasters result in systematic losses correlated across clients and geographical regions. Therefore insurers face the risk of having to compensate large losses due to a disaster event that affects clients in an entire community or region. As a result, the standard principle of paying damage compensation to affected clients only by pooling resources from non-affected clients typically does not apply. Furthermore the scope of reinsuring disaster insurance schemes is limited or the costs of reinsurance are very high. Due to these obstacles, private insurers have been reluctant to offer policies that cover flood and other natural hazards.

From the perspective of the insured, insurance demand in low-income economies frequently is low due to limited financial resources and thus has been found insufficient to ensure the risk pooling even within the community or region. Past studies have shown that the poorest households are most prone to floodplain risk and that even if an insurance provider exists, poor households in Bangladesh probably cannot afford commercial insurance due to income constraints.

Selections of households for the survey in each of the villages followed a systematic random sampling method. The survey questionnaire consisted of about 50 questions and was divided into three sections: socio-demographic household characteristics, the type and extent of suffering due to annual and incidental disaster flooding, and attitudes to and willingness to pay for micro-finance where respondents were presented with a hypothetical insurance programme. Households were asked whether they would like to participate in a scheme, about their most preferred insurance scheme, who they would prefer to have as a provider and preferred payment frequency. The key informant interviews and workshop with decision-makers took place a year later in 2007 with 20 representatives of government, private insurance companies and micro-credit providers.

Findings

The research reinforced the scepticism in the literature about potential low effective demand for new insurance products. Only one half of respondents agreed to participate in the hypothetical flood insurance programme. Although there may be models to reduce the administrative costs so that cost recovery may be feasible, there may be structural problems. It appears that key players in the micro-finance market in Bangladesh vary in terms of their motivations, degree of power and type of stakes they pursue in such a market. These differences make collaboration under such an organisational framework less likely and a potential collaborative agreement unstable.

Given the importance of profits among private insurance companies and the gap between the expected premium and the indemnity amount, it seems unlikely that private micro flood insurance can be introduced in Bangladesh at present.

A question remains as to whether an insurance programme stands more chance of survival and whether it could become more viable if it was implemented through a public-private partnership.

Given that micro-credit providers expressed interest in offering an affordable insurance scheme and the large inflow of foreign donations in this sector, they may be able to play a key role in developing a micro flood insurance market. Micro-credit providers, furthermore, have a competitive advantage in that they have more access to the client base, have better infrastructural facilities across even the most remote parts of Bangladesh, enjoy a greater degree of trust and credibility among clients, and have pre-existing information on client portfolios and risk history. The study also found indications that potential insurance clients prefer public provision of micro flood insurance, possibly because they consider flood risk protection a government responsibility or have a higher degree of trust in the public sector than the private sector. However, it is important not to underestimate the need for sound actuarial analysis in providing a viable insurance scheme in the long term. Such experience is only available in private insurance companies.

The authors conclude that a governmentdirected and facilitated process to settle and overcome the differences observed in the study between the non-profit micro-credit providers and profit-oriented private insurance companies is needed. This should build on the particular competences that each party can lend to the development of a viable micro flood insurance market through a public-private partnership.

Show footnotes

1Akter. S et al (2011). Exploring the feasibility of private micro flood insurance provision in Bangladesh. Disasters, volume 35 (2), pp 287-307, 2011

More like this

FEX: Microfinance institutions and a coastal community’s disaster risk reduction, response, and recovery process in Bangladesh

Summary of published research1 A mother and child in Gopalgan, Bangladesh Location: Bangladesh What we know already: Microfinance programmes generate income opportunities...

FEX: A role for capital markets in natural disasters

Summary of a published Paper Market-based means of managing natural disaster risk are emerging according to a recent article in Food Policy1. While multiple peril crop...

FEX: Micro-credit in refugee situations

Summary of published research1 Micro-credit and other types of loan programmes have not been widely attempted within refugee and internally displaced population (IDP) contexts...

FEX: Partnership and Disaster Response (and Post Script)

Teenage girl distributing seeds at a village meeting in Kurigram By Tracy McGhee, Press officer SCF(UK). In August last year, as news reports began to show that Bangladesh...

FEX: British Red Cross urban learning scoping study

Summary of report1 The British Red Cross has undertaken a scoping study to better understand the challenges posed by humanitarian action in urban areas, and how the Red Cross...

FEX: Income and employment support (Special Supplement 3)

5.1 Introduction The provision of cash as an emergency response has the potential to impact on all elements of the livelihoods framework by providing the means to protect or...

FEX: Risk sharing and social hierarchy in disaster aid

Summary of research1 Location: Fiji What we know: To design effective participatory/decentralised disaster management, it is crucial to better understand community...

FEX: Political economy of adaptation through crop diversification in Malawi

Summary of article1 A government agricultural extension officer showing a farmer how to care for a cassava plant (FAO supported project) The seriousness of the problem of...

FEX: Lessons from the humanitarian response

Summary of unpublished paper* "Torrential and long lasting rainfall led to overflowing of rivers in the lower regions" François Grunewald presented a paper on lessons learnt...

FEX: Oxfam evaluation of Cyclone Sidr response

Summary of evaluation1 A boy stands next to his makeshift home in Patarghata (Barguna District). Late in the evening of 15th November 2007, Cyclone Sidr struck Bangladesh's...

FEX: Emergency Food Security and Livelihoods Project in Amhara and Oromia regions

By Shekar Anand, Oxfam Shekar is Programme Director for Oxfam GB in Ethiopia. Past experience includes working with OXFAM, CARE, CIDA, and Government in Aceh, India, Zimbabawe...

FEX: Market-led Livelihood Recovery and Enhancement Programme and integrating ENAs

By Andrew Simons, Daniel Gebeyehu, Getachew Gemtesa and Markos Kidane Andrew Simons is the National Programme Director for Food for the Hungry (FH) Ethiopia. He holds an...

FEX: Nutrition incentives in dairy contract faming in northern Senegal

Summary of research1 Location: Senegal What we know: Seasonality plays an important role in milk production in Senegal; milk production is the cornerstone of nutrition,...

FEX: Crop failure in Dalocha, Ethiopia: a Participatory Emergency Response:

Howell. P (1998), Disasters, Volume 22, No 1, March 1998, pp57-76 The following is a summary of a paper recently published in Disasters. The views expressed are those of the...

FEX: Use of cash vouchers in tropical storm emergency response in the Philippines

By Nashrudin Modin and Demosthenes Militante Nashrudin Modin has worked in the Philippines mission of ACF International since 2005, under the Food Security and Livelihoods...

FEX: Nutrition security emergency programming in diverse urban contexts

By Marie Sardier, Joanna Friedman, Maureen Gallagher and Julien Jacob Marie Sardier is Food Security and Livelihoods Advisor with Action contre la Faim (ACF) in Paris...

FEX: Summary of the Oxfam Review of Bangladesh flood response

Food Distribution in Bangladesh '98 Between July and October last year Bangladesh suffered severe flooding regarded as the worst in living memory: two-thirds of Bangladesh was...

FEX: Effects of performance payments to health workers in Rwanda

Summary of published research1 A study just published in the Lancet set out to assess the effect of performance-based payment of healthcare providers on the use and quality of...

FEX: An overview of REST’s implementation of the Productive Safety Net Programme

By The Relief Society of Tigray (REST) Mekelle Team The Relief Society of Tigray (REST) has been in existence in Ethiopia for over 30 years, starting out as a relatively small...

FEX: Lessons From a Microfinance Pilot Project in Rwanda

By Tamsin Wilson Tamsin Wilson is an independent microfinance consultant. She coordinated Concern Worldwide's qualitative research on microfinance in Angola, Mozambique,...

Close

Reference this page

Feasibility of private micro flood insurance provision in Bangladesh. Field Exchange 41, August 2011. p15. www.ennonline.net/fex/41/feasibility