Modelling demand for catastrophic flood index-based insurance in Da Nang City, Vietnam: Using choice experiments

Insurance for catastrophic disasters, despite being in the interest of policy makers and private insurers in the context of climate change, has not achieved significant penetration and suffers low financial performance due to a lack of well-designed insurance products. Index-based insurance is one measure to bridge that gap and to cope with weather-related risks, especially in developing countries lacking mechanisms like risk-sharing and pooling programmes. Da Nang is very vulnerable to climate change-induced disasters, particularly typhoons and floods. Using a combination of qualitative and quantitative methods, the results show that households have taken adaptive measures to minimise the impacts of annual floods, such as moving their assets to safer places, evacuation and building houses with higher foundations, but not for catastrophic floods. The situation has been exacerbated by rapid urbanisation and water discharge from upstream hydropower plants. Annual flood damage costs have reached about VN$ 8.2 million (about US$ 400)/household) in which about 50 per cent of total costs is from damage to houses. The costs for damage caused by extreme floods now reach about VN$ 20 million/household, in which damage to properties is VN$ 12 million/household. ~The results show that households living in Da Nang have a high demand for flood index-based insurance. About 87 per cent of total respondents are willing to pay for index-based insurance, and expect reasonable insurance premiums to be VN$ 10,000–20,000/household/month and insurance payouts for damages to be VN$ 10–20 million. Based on these results, developing and piloting flood index-based insurance for households living in the city are strongly recommended. This will reduce households’ exposure to flood damage and the financial burden for both government and households in the context of rapid urbanisation and climate change.