Economics of Index-based Flood Insurance (IBFI): scenario analysis and stakeholder perspectives from South Asia

The International Water Management Institute (IWMI) has recently developed an innovative Index-based Flood Insurance (IBFI) product to facilitate the scaling of flood insurance particularly in vulnerable economies, to provide risk cover to poor farmers against crop losses that occur due to floods. While the product developed is technically very sound, the economics of such an intervention is important to ensure the large-scale acceptance and adoption of the product by different stakeholders and for its sustenance in the long term. This paper attempts at conducting an ex ante assessment of the economics of IBFI from the perspectives of the three main stakeholders: farmers, the insurance company and the government. The paper discusses the methodological challenges and data issues encountered in undertaking an economic analysis of such a product. The issues and processes involved have been empirically demonstrated using a theoretical case study based on a synthesis of information drawn from a host of sources and certain assumptions. Field-based data are now being collected and analyzed from the locations where IBFI has recently been piloted by IWMI. This will help in further refining the process of economic evaluation and identifying the experiences of different stakeholders.