Low-income households' willingness to pay for flood risk insurance in South Africa

Abstract

As climate change leads to increase flood risks, South Africa continues to rely on government driven ex post relief initiatives for flood management whilst commercial insurance providers are not yet incorporated into broader flood management strategies. The willingness to pay (WTP) for flood risk insurance is investigated among this most vulnerable demographic of low income households. Using discrete choice experiments (DCE) and mixed logit models, it uses primary data from respondents in Buffalo City metropolitan municipality to analyse preferences for insurance attributes, such as coverage levels, premiums and excess fees. The findings also show that there is a strong preference for lower premiums, better quality insurers, and easier application processes for adoption. The results of mixed logit show that attributes like the increased building coverage results in positive WTP and further confirms the need for insurance plans that are easily accessible and affordable. Taken together, the findings in this research highlight the value of trust, transparency, and the cost effectiveness of policy design in boosting both consumption of flood insurance and community resilience to floods among vulnerable populations.

Keywords

• Willingness to pay
• Flood risk insurance
• Insurance uptake
• Mixed logit model
• Discrete choice experiments