Viability of microinsurance as a catastrophe risk finance option for floods in Vietnam
Chen, Si Rong.
Date of Issue2010
School of Civil and Environmental Engineering
The key purpose of the report is to research on the demand for flood micro-insurance as a risk financing option to help low-income agricultural households cope with flood risk in Vietnam. The Mekong Delta in the south of Vietnam is chosen as the area of research for the report as it is one of the two largest rice producing agricultural areas other than the Red River Delta in the North. Strategically located at the mouth of the Mekong River, the Mekong Delta experiences floods annually during the rainy season as the monsoon rains swell the upper Mekong River and its tributaries causing inundation to the provinces in downstream Mekong Delta. Majority of the population in Mekong Delta is dependent on agriculture for livelihood. Although the yearly floods are essential to keep the soil fertile for agriculture, however extreme floods are a threat to their livelihoods as they damage both agriculture and properties and affect the yield of crops. Besides subjected to annual flooding, Mekong Delta is one of the three regions in Vietnam that make up more than two-thirds of the country’s poor, hence it is a favorable region to introduce flood micro-insurance as a risk financing option. To date, as micro-insurance is still a relatively new concept in Vietnam, it is difficult to assess its demand as a potential flood-risk financing option since there is currently no weather micro-insurance product available in the Vietnamese market. This is the case even though Vietnam has a large potential market for flood micro-insurance since a significant portion of its population experiences floods every year, and the numbers are likely to increase as the frequency and extent of floods worsen as a result of the effects of climate change. Until micro-insurance products become more readily available in Vietnam, there is likely to be a margin of error in assessing demand. Therefore in the meantime market research study is used in the report to assess the demand for flood micro-insurance. Can Tho City, the largest province in Mekong Delta, is selected for the demand study of flood micro-insurance. As there are currently no flood micro-insurance products available in Vietnam, the demand study will be focused on the initial product concept development stage of the product development process for micro-insurance. Key topics covered in the demand study are the demographic, geographic and economic characteristics of Can Tho City, the nature of risk faced by the people in the province, their risk priorities as well as their existing risk coping strategies. The role of market research in the product concept development phase is to identify the market segment that is most vulnerable to flood risk and the critical gaps in existing risk coping practices that flood micro-insurance can target. Information derived from demand study can help potential insurers decide whether there is a potential flood micro-insurance market in Mekong Delta. On top of this, the report will look at the potential challenges of introducing flood micro-insurance as a non-structural measure to manage flood-risk, and the economic issues in the design of the flood micro-insurance product for Mekong Delta. This is done by assessing the state of the insurance industry in Vietnam, the people’s perception and knowledge of insurance and flood-risk, their willingness to pay for micro-insurance, as well as the possible partnership models to provide micro-insurance to the poor, their pros and cons; and also the role of the government in flood micro-insurance schemes. From the demand study, and the potential challenges and economic issues in the design of flood micro-insurance, we are able to gauge the feasibility of introducing flood micro-insurance as a flood-risk financing option in Can Tho City, and identify which market segment to target, and what kind of flood micro-insurance product meet the needs of the targeted market segment. Flood risk is difficult to insure as it affects many people at the same time, to solve the problem of covariant risk, index-based flood micro-insurance is selected as a possible mode of insurance for Mekong Delta.
Final Year Project (FYP)
Nanyang Technological University