Introducing a Micro-Flood Insurance Market in Bangladesh: Institutional Design and Commercial Viability
The main objectives of this paper are to design and test the commercial viability of the introduction of different flood insurance schemes in Bangladesh, one of the poorest and most flood struck developing countries in the world. The study presented here takes place in the context of both low supply due to the inherent risky nature of high expected losses caused by flooding and low insurance demand due to lack of financial income resources of large parts of the floodplain populations. In this paper we compare the expected compensation payment by potential insurers with the expected premium for different flood insurance schemes under two different institutional- analytical models: a partner-agent and full service model of micro-insurance. We find that although demand and willingness to pay (WTP) for flood insurance are low in flood risk areas in Bangladesh, commercially viable markets exist for house property and unemployment insurance. However, administrative implementation costs of micro-insurance play a significant role in determining the viability as well as the long-term sustainability of micro flood insurance schemes. The policy implication of the work presented here is that partner-agent models of microinsurance organization are a precondition for the long-term sustainability of a micro flood insurance market. We conclude that a full service based organizational structure is only viable in places where flood probability is considerably low.