The Role of Microcredit and Microinsurance in Coping with Natural Hazard Risks

Type Conference Paper - 18th Annual Conference of the European Association of Environmental and Resource Economists
Title The Role of Microcredit and Microinsurance in Coping with Natural Hazard Risks
Author(s)
Publication (Day/Month/Year) 2011
URL http://www.webmeets.com/files/papers/EAERE/2011/546/Akter and Fatema_Revision 1_May2011.pdf
Abstract
The study investigates the role of post-disaster credit market access in determining micro-flood-insurance demand in the rural floodplains of Bangladesh. In a large-scale household survey we asked 3,000 residents in six different districts of Bangladesh about their willingness to participate and pay for a hypothetical flood-insurance programme. Combining factors put forward in risk theory and economics, we employed the ‘triple-hurdle’ approach to model the three stage sequential decision problem. Our results show that post-disaster microcredit has a positive relationship with insurance participation decision and a negative relationship with willingness to pay premium for flood-insurance. One possible explanation for these findings is that, on average and other things remaining the same, households who accessed post-disaster microcredit to cope with natural disaster induced losses in the past were willing to invest in flood-insurance as an alternative disaster coping measure so long as they considered the proposed insurance premium cheaper than the cost of accessing post-disaster microcredit.

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