Determinants of Participation in a Catastrophe Insurance Programme: Empirical Evidence from a Developing Country

This paper presents empirical evidence of the determinants of catastrophe insurance participation. It uses data from a household survey carried out in Bangladesh in 2006. The study gathered information from 3,000 residents in six districts about their willingness to participate in a catastrophe insurance program.

The paper uses a combination of risk theory and economics to estimate a model of insurance participation. Considering indicators of exogenous and endogenous risk, the study finds that:

• Household decision to participate in the insurance program depends on both exogenous and endogenous risk exposure levels;
• Ability to pay, measured in terms of household income and access to credit, significantly affects insurance participation;
• Education and occupation significantly influence household decision making.
• Finally, low participation rates for catastrophe insurance in a developing country can be explained by high rates of illiteracy and limited access to credit.