Evaluating Flood Insurance as a Climate Adaptation Using A Discrete Choice Experiment

<title>Abstract</title> <p>This study evaluates preferences for flood insurance in Pakistan via a discrete choice experiment. Climate-induced floods pose an increasing threat in countries vulnerable to climate change, despite low levels of insurance penetration. Flood financing is a significant challenge, particularly in developing nations such as Pakistan, where the formal flood insurance market remains underdeveloped and insurance penetration is low. A survey was conducted in flood-affected areas, where respondents evaluated hypothetical insurance products distinguished by coverage level, premium, payout timeline, and type of insurance provider. Individual preferences were analyzed within a random utility framework for the flood insurance scheme. A mixed logit model, estimated via simulated maximum likelihood and Halton draws, was employed to assess preferences regarding insurance attributes such as coverage, payout duration, takaful, hybrid models, and premiums. Furthermore, interaction effects were analyzed to capture heterogeneity concerning socioeconomic variables, risk perception, and institutional trust. The study also computed marginal willingness-to-pay estimates via the Krinsky-Robb simulation. The findings demonstrate that higher insurance coverage and shorter payout durations significantly increase respondent utility from flood insurance options. The marginal willingness-to-pay estimates were obtained via the Krinsky-Robb method. Overall, the findings indicate that an effective flood insurance strategy in Pakistan can emphasize affordable premiums, faster claim settlements, initiatives to foster trust, transparent governance, and proactive outreach to flood-prone regions. This approach has the potential to enhance climate adaptation, risk financing, and insurance penetration.</p>