Leaving the market or reducing the coverage? A model-based experimental analysis of the demand for insurance

Corcos, Anne; Pannequin, François; Montmarquette, Claude

doi:10.1007/s10683-017-9513-8

Cited by 16 publications

(13 citation statements)

References 14 publications

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“…Even though all our respondents were floodplain inhabitants, only a minority of subjects stated confidently that their house was located in a floodplain and many did not consider damage reducing measures as cost-effective. Although our design differs in some key points 17 from the experiment of Corcos et al (2017), it is interesting to compare the results. Our split between cautious and uncautious types suggests that the cautious types make decisions based on calculation, while the split between risk lovers and risk averters of Corcos et al (2017) indicated strategic gambling rather than a lack of interest in insurance by the risk lovers.…”

Section: Resultsmentioning

confidence: 99%

“…Although our design differs in some key points 17 from the experiment of Corcos et al (2017), it is interesting to compare the results. Our split between cautious and uncautious types suggests that the cautious types make decisions based on calculation, while the split between risk lovers and risk averters of Corcos et al (2017) indicated strategic gambling rather than a lack of interest in insurance by the risk lovers. A careful examination of the strategic motivations such as opportunism and strategic ignorance of the uncautious types requires further research.…”

Section: Resultsmentioning

confidence: 99%

“…More recently, Corcos et al (2017) examined the premium sensitivities in demand for insurance, both theoretically and experimentally. They found that an increase in premiums causes risk loving subjects to leave the market, while the conditional demand (the level of coverage demanded) does not change.…”

Section: Behavioral Motivations For Self-insurancementioning

confidence: 99%

“…Published paper at https://doi.org/10.1016/j.jebo.2018.12.007 tend to purchase insurance and also take other measures to limit risks. The importance of the role of risk preferences is also recognized by Corcos et al (2017) who conduct a lab experiment on the conditional demand for insurance under premium variations, while controlling for risk preferences. In our study, we investigate the influence of financial incentives and behavioral motivations on the level of self-insurance against LPHI risk.…”

Section: Introductionmentioning

confidence: 99%

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Behavioral motivations for self-insurance under different disaster risk insurance schemes

Mol

Botzen

Blasch

2020

Journal of Economic Behavior & Organization

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This paper presents a lab-in-the-field experiment with 2111 Dutch homeowners in floodplain areas to examine the impacts of financial incentives and behavioral motivations for self-insurance under different flood insurance schemes. We experimentally varied the insurance type (mandatory public versus voluntary private) and the availability of a premium discount incentive for investing in flood damage mitigation measures. This setup allowed us to examine the existence of moral hazard, advantageous selection and the behavioral motivations of individual agents who face these different insurance types, without the selection bias that makes a causal inference from survey studies problematic. The main results show that a premium discount can increase investments in self-insurance under both private and public insurance. Moreover, we find no support for moral hazard in our natural disaster insurance market, but we do find a substantial share of cautious people who invest both in private insurance as well as in self-insurance, indicating advantageous selection. The results have implications for the design of insurance schemes to cope with increasing natural disaster risks.

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Section: Resultsmentioning

confidence: 99%

Section: Resultsmentioning

confidence: 99%

Section: Behavioral Motivations For Self-insurancementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Behavioral motivations for self-insurance under different disaster risk insurance schemes

Mol

Botzen

Blasch

2020

Journal of Economic Behavior & Organization

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“…The results indicate the presence of a status-quo bias in health insurance policies: Respondents chose their insurance policies based on the default offer. In a related laboratory experiment, Corcos et al (2017) examined the demand for insurance coverage by presenting subjects with 20 equally-spaced deductible options, reaching from no insurance to full coverage. The results confirmed the bimodal pattern in flood insurance demand, with clear preferences for both extreme cases.…”

Section: Deductiblesmentioning

confidence: 99%

Risk reduction in compulsory disaster insurance: Experimental evidence on moral hazard and financial incentives

Mol

Botzen

Blasch

2020

Journal of Behavioral and Experimental Economics

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In a world in which economic losses due to natural disasters are set to increase, it is essential to study risk reduction strategies, including individual homeowner investments in damage-reducing (mitigation) measures. In this lab experiment (N = 357), we investigated the effects of different financial incentives, probability levels, and deductibles on self-insurance investments in a natural disaster insurance market with compulsory coverage. In particular, we examined how these investments are jointly influenced by financial incentives, such as insurance, premium discounts, and mitigation loans. We also studied the influence of behavioral characteristics, including individual time and risk preferences. We found that investments increase when the expected value of the damage increases (i.e., higher deductibles, higher probabilities). Moral hazard is found in the high-probability (15%) scenarios, but not in the low-probability (3%) scenarios. This suggests that moral hazard is less of an issue in an insurance market where probabilities are low. Our results demonstrate that a premium discount can increase investment in damage-reduction, as can a policyholder's risk aversion, perceived efficacy of protective measures, and worry about flooding.

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Quantifying the role of insurance in tornado-impacted community recovery: a survey and simulation-based approach

Zhao,

Lee,

Yan

et al. 2024

Nat Hazards

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Insurance against disasters plays a critical role in community recovery by providing policyholders with reliable and timely payments for repairing or reconstructing damaged houses. By allowing homeowners to transfer risk, insurance enables homeowners to repair or reconstruct damaged houses without experiencing significant financial hardship. Although historical events have highlighted the importance of insurance, its quantitative impact on community recovery, particularly in tornado-impacted communities, is understudied. This study focuses on advancing our understanding of whether sufficiently insured houses can have a positive impact on the recovery of tornado-impacted communities (i.e., the main research question). This paper proposes a two-stage simulation framework to quantitatively evaluate the effects of insurance on community recovery. In the first stage of the framework, we developed statistical models to estimate homeowners' insurance decisions prior to a tornado event. In the second stage, we examined the effects of insurance on various aspects of community recovery. All the empirical and statistical models within the framework were developed based on the data collected from online surveys targeting residents whose properties were damaged by the tornadoes that occurred in May 2019 in the United States. Finally, the proposed simulation framework was applied to the City of Dayton, Ohio following those May 2019 tornado events to address the main research question. The results of the simulation concluded that sufficiently insured houses can have a positive impact on community recovery and highlighted the need for effective policies and economic incentives to encourage individuals to purchase insurance.

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Leaving the market or reducing the coverage? A model-based experimental analysis of the demand for insurance

Cited by 16 publications

References 14 publications

Behavioral motivations for self-insurance under different disaster risk insurance schemes

Behavioral motivations for self-insurance under different disaster risk insurance schemes

Risk reduction in compulsory disaster insurance: Experimental evidence on moral hazard and financial incentives

Quantifying the role of insurance in tornado-impacted community recovery: a survey and simulation-based approach

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