Rethinking financial instruments: The case study of floods in Nepal

Abstract

Index-based insurance is often discussed in the literature as one of
the innovative financial instruments for micro-insurance. Ongoing
research has shown that concerns remain about the demand for index
insurance in low and middle-income countries. In Nepal, recent
literature has demonstrated that the demand for crops is low, that
index-based insurance products for specic crops should be piloted
and that farmers' willingness to participate should be assessed.

This thesis explores the factors that affect smallholder farmers' demand
for hypothetical index-based flood insurance (IBFI) for crops
in Nepal. The study employs a mixed-methods approach including
an index-based insurance game and brings empirical quantitative and
qualitative evidence from flood exposed areas in the lowlands of the
Karnali River basin.

Three common factors were identied and are most likely to infuence
farmers' decisions for potential IBFI; i) the basis risk ii) education and
iii) recent weather conditions. However, non-common factors identified by the qualitative approach indicated that practical implementations
(such as distance to insurance provider) should also be taken into
consideration when piloting future activities for potential index-based
insurance products to minimise the risks and increase participation.
Employing a mixed-methods approach was proved to be valuable to
expand the research around application of IBFI but also to provide a
foundation for potential policy and practical implementation.