The aims of the study presented in this paper are to assess the demand for and test the commercial
viability of a crop insurance scheme in different natural disaster-prone areas in
Bangladesh, as an alternative poverty alleviation and natural disaster mitigation strategy. In a
large scale household survey carried out at the end of 2006, 3600 riverine and coastal floodplain
residents in Bangladesh were asked for their preferences for crop insurance schemes
using the double bounded contingent valuation (CV) method. For example, asking them for
their willingness to pay (WTP) for crop insurance schemes to eliminate future catastrophe
risks. We find crop insurance demand to be positively correlated with household head’s primary
occupation, land ownership and size of agricultural farm land. Our study further reveals
that crop damage cost and households’ willingness to pay to reduce damage vary significantly
across the nature of the disaster risk. Using the data collected through household
survey, we tested our simple analytical model of commercial viability of a crop insurance
scheme by comparing the future value of expected premium receivable by insurer, with the
expected indemnity payable to the insured. Assuming zero administrative cost and 10% interest
rate per annum, we find crop insurance schemes are marginally viable in riverine flood
plain areas (both embanked and unembanked). The difference between the average expected
indemnity payment and the future value of expected insurance premium is way too high for
the nature of risk and amount of damage cost faced by households living in haor basin and
coastal floodplain areas.