An Analysis of the Demand for Earthquake Insurance

This research examines the decision to purchase earthquake insurance by analyzing data on earthquake insurance price and penetration in the New Madrid fault zone in Missouri. Earthquake risk is of concern to consumers, the insurance industry, industry regulators, and government agencies because of the potentially catastrophic nature of losses resulting from a major earthquake. Despite the significance of the earthquake peril, the recent literature does not contain estimates of the price and income elasticity of the demand for earthquake insurance. Our analysis indicates that homeowners acquire earthquake insurance because of risk considerations, at higher levels of risk the demand for earthquake insurance is higher, and the price of earthquake coverage does not provide incremental information in explaining the demand for earthquake coverage.     

Flood Hazards, Insurance Rates, and Amenities: Evidence From the Coastal Housing Market

This study employs the hedonic property price method to examine the effects of flood hazard on coastal property values. We utilize Geographic Information System data on National Flood Insurance Program flood zones and residential property sales from Carteret County, North Carolina. Our results indicate that location within a flood zone lowers property value. Price differentials for flood risk and the capitalized value of flood insurance premiums are roughly equivalent—both exhibiting a nonlinear relationship in flood probability. Our results support the conclusion that flood zone designation and insurance premiums convey risk information to potential buyers in the coastal housing market.     

Homeowners Insurance With Bundled Catastrophe Coverage

We estimate the demand for homeowners insurance in Florida and New York with indicated loss costs as our proxy for the quantity of real insurance services demanded. We decompose the demand into the demand for coverage of catastrophe perils and the demand for noncatastrophe coverage and estimate these demand functions separately. Our results are relatively consistent in New York and Florida, including evidence that catastrophe demand is more price elastic than noncatastrophe demand. We also find evidence that consumers value options that expand coverage, buy more insurance when it is subsidized through regulatory price constraints, and consider state guaranty fund provisions when purchasing insurance.     

Come Rain or Shine: Evidence on Flood Insurance Purchases in Florida

This article provides a detailed analysis of the operation of the National Flood Insurance Program (NFIP) in Florida, which accounts for 40 percent of the NFIP portfolio. We study the demand for flood insurance with a data set of more than 7.5 million NFIP policies‐in‐force (the largest ever studied) for the years 2000–2005, as well as all NFIP claims filed in Florida. We answer four questions: What are the characteristics of the buyers of flood insurance? What types of contracts (deductibles and coverage levels) are purchased? What are the determinants of claims payments? How are prices determined and how much does NFIP insurance cost?     

Strategic Demand for Insurance

We focus on the corporate demand for insurance under duopoly. We consider the case in which firms purchase insurance in order to enhance their competitiveness. We show that a higher level of corporate insurance makes a firm more aggressive and its competitor less aggressive in the output market (strategic effect). The optimal coverage of insurance is determined by comparing the strategic effect of insurance and the cost of insurance. The optimal coverage is positive if the strategic effect is greater than the cost of insurance. An interesting implication is that a risk‐neutral firm may purchase actuarially unfair insurance. The main strategic effect of insurance comes from the fact that firms purchase insurance before they produce outputs. Insurance makes firms more aggressive due to the limited risk costs of firms.     

The Aggregate Demand for Private Health Insurance Coverage in the United States

This article estimates the aggregate demand for private health insurance coverage in the United States using an error correction model for the period 1966–1999. Both short- and long-run price and income elasticities of demand are estimated. The empirical findings indicate that both private insurance enrollment and the completeness of insurance are relatively inelastic with respect to changes in price and income in the short and long run. Moreover, the results suggest that an increase in the number cyclically and frictionally uninsured generates less welfare loss than an increase in the number of structurally uninsured.     

Wealth, Income, and Optimal Insurance

This article considers the decision to purchase insurance against possible losses of a property or wealth. The decision involves a standard economic trade‐off between the benefit of protection against loss and the cost of insurance premium. The premium is paid out of the income and decreases the consumption of other goods and services, rather than out of wealth and decreases the property or wealth. The demand for insurance depends mainly on the income and preferences. As a result, unlike in the standard model, a fair premium is neither necessary nor sufficient for the optimality of full coverage insurance. Rather, the individuals with higher incomes purchase full coverage insurance even at unfair prices of insurance while the individuals with lower income purchase partial coverage insurance at a fair price.     

Optimal Loss Mitigation and Contract Design

This work examines the interaction between the premium rates set by an insurer and the incentives of an individual to purchase market insurance and undertake mitigation to reduce the size of a potential loss. A risk‐neutral monopolistic insurer prices insurance according to the price‐elasticity of demand for coverage. The elasticity of demand is affected by the presence of both mitigation and government intervention. The availability of loss reduction activities increases the consumer's elasticity of demand and lowers the optimal rate charged by the monopolist. Government intervention reduces both expenditures on mitigation and the rate charged by the monopolistic insurer.     

Guaranteed renewable life insurance under demand uncertainty

Guaranteed renewability (GR) is a prominent feature in many health and life insurance markets. We develop a model that includes unpredictable (and unobservable) fluctuations in demand for life insurance as well as changes in risk type (observable) over individuals' lifetimes. The presence of demand type heterogeneity leads to the possibility that optimal GR contracts may have a renewal price that is either above or below the actuarially fair price of the lowest risk type in the population. Individuals whose type turns out to be high risk but low demand renew more of their GR insurance than is efficient due to the attractive renewal price. This results in imperfect insurance against reclassification risk. Although a first‐best efficient contract is not possible in the presence of demand type heterogeneity, the presence of GR contracts nonetheless improves welfare relative to an environment with only spot markets.     

Rainfall or Rainmaking? Lawyers,Courts, and the Price of Mold Insurance in Texas

In well‐functioning property‐‐liability insurance markets, the price of coverage reflects the impact of the legal environment on the frequency and severity of claims. This article presents a case study of the Texas mold insurance crisis of 2001–2002. We provide a narrative of the controversy in Texas over insurance coverage for household mold and use county‐level data from a single Texas insurer to assess the determinants of postcrisis prices for supplemental mold, slab, and extended water loss coverages. We find that more attorneys per capita and more heavily Democratic courts were both associated with higher prices for mold and slab coverage.     

Temporal Profitability and Pricing of Long-Term Care Insurance

Equilibrium models of dynamic insurance markets can be bifurcated according to underlying assumptions about whether or not insurers commit to long‐term contracts. The difference is substantial in that commitment models imply price highballing over time while no‐commitment models indicate price lowballing. Extant empirical studies provide mixed evidence, however. We use long‐term care (LTC) insurance data, which allow us both to better control for heterogeneous, observable risk, to examine dynamic profitability and pricing in a relatively young, innovative insurance market. Our tests generally indicate temporal price lowballing, thereby providing support for the no‐commitment models.     

Don't They Care? Or,Are They Just Unaware? Risk Perception and the Demand for Long‐Term Care Insurance

The potential need for long‐term care (LTC) is one of the greatest financial risks faced not only by the elderly but also by their adult children, who often provide care or financial assistance. We investigate adult children's role in the demand for LTC insurance. Similar to flood insurance, we find that demand for LTC insurance is low due to low risk perception. The more aware adult children are of the risk, the more likely LTC insurance is to be purchased, either by the children themselves on behalf of their parents or by the parents under the influence of their children.     

The Effects of Uncertainty on the Demand for Health Insurance

This article analyzes the effects of uncertainty and increases in risk aversion on the demand for health insurance using a theoretical model that highlights the interdependence between insurance and health care demand decisions. Two types of uncertainty faced by the individuals are examined. The first one is the uncertainty in the consumer's pretreatment health and the second is the uncertainty surrounding the productivity of health care. Comparative statics results are reported indicating the impact on the demand for insurance of shifts in the distributions of pretreatment health and productivity of health care in the form of first‐order stochastic dominance, Rothschild–Stiglitz mean‐preserving spreads, and second‐order stochastic dominance. The demand for insurance increases in response to a Rothschild–Stiglitz increase in risk in the distribution of the pretreatment health provided that the health production function is in a special class and the price elasticity of health care is nondecreasing in the pretreatment health. Provided also that the demand for health care is own‐price inelastic, the same conclusion is obtained when the uncertainty is about the productivity of health care.     

基于居民支付意愿的洪水保险定价研究

洪水保险的合理定价是制约洪水保险建立和推广的瓶颈之一,以往的洪水保险定价研究都是从供给的角度考虑的,而供给与需求之间存在差异。为了探索居民对于洪水保险的需求价格,从居民的洪水保险支付意愿出发,运用条件价值评估法(CVM法),借助调查问卷,实证分析得出:我国居民洪水保险支付意愿价格为81元,并分析了对于支付意愿的影响因素。     

Private Hochwasservorsorge und Elementarschadenversicherung

In light of increasing flood damage, private flood mitigation gains more relevance. We investigate empirically whether the uptake of private flood mitigation measures in Germany is affected by (a) the perceived flood insurance coverage, and (b) public information campaigns focussing on flood hazards. We use a novel longitudinal dataset of more than 3200 households and employ a difference-in-differences estimation approach. The results show that households who state a change in their insurance status and report themselves as being insured mitigate more, not less. This contradicts the expectation of moral hazard and suggests that insurance and mitigation are rather seen as complements than substitutes. Moreover, the survey data suggest that many households falsely expect being flood-insured. Public information campaigns show no measurable effect on the flood mitigation behaviour of households, which poses questions about the effectiveness of large-scale information campaigns. In tendency, our results support the idea of compulsory flood insurance.     

On the Corporate Demand for Insurance: The Case of Korean Nonfinancial Firms

Several theories have been developed to explain the motives for corporate insurance purchases, but there are few empirical tests of these theories. Furthermore, the empirical results are not consistent across studies, suggesting the need for further research. This study uses accounting data for 433 publicly listed nonfinancial firms in Korea to test the determinants of insurance demand for the period 1990 through 2001. Our results support the theory that firm size, tax considerations, and firm ownership are important determinants of insurance demand. Firms that are members of chaebols demand more insurance than unaffiliated firms, all else equal. Contrary to theory, our results also indicate that firms that have higher debt‐to‐equity ratios demand less insurance than less leveraged firms, and that firms that have greater liquidity demand more insurance. This might be related to the overall high debt levels of firms in the period leading up to the Korean financial crisis in 1997, but that investigation is beyond the scope of this study.     

人身险需求对物价波动的非对称响应——基于中国2000-2010年季度数据的实证研究

基于中国人身险市场2000-2010年季度数据的实证分析表明,人身险需求增长率对于物价波动的反应是非对称的。首先与物价明显上涨的情况相比较,人身险需求对物价明显下跌的反应更加强烈。其次,适当提高名义利率的通货膨胀弹性将有助于人身险市场的快速发展。第三,目前温和的通货膨胀可以促进人身险需求的增长,人身险企业应该抓住扩大内需的有利时机。第四,由于市场需求模式在门限值附近出现较大改变而有可能冲击人身险行业,所以当通货膨胀率接近门限值时,人身险行业应该及时地调整营销策略。     

Examining the Marginal Access Value of Private Health Insurance

According to a new theory advanced by Nyman (1999, 2003) , an important access motivation underlies the demand for health insurance. However, little empirical research has attempted to quantify and explain changes in the access value of health insurance. By assuming the demand for health insurance is derived from the demand for good health, this article shows mathematically that the marginal access value of private health insurance can be reasonably indexed by dividing the price of health insurance by a composite measure of medical prices. For the period from 1960 through 2002, national data for the United States suggests that the marginal access value of private health insurance has tended to increase over time. Based upon multiple regression analysis, marginal access value is shown to have increased over time in response to rising income, more generous benefit coverage, new medical technologies, and, in recent years, the backlash against health maintenance organizations (HMOs). In addition, expansions in the Medicaid program are shown to have slowed the growth of the marginal access value of private health insurance.     

Law and the Determinants of Property-Casualty Insurance

This article examines the importance of legal rights and enforcement in influencing property‐casualty insurance (PCI) consumption. We extend the existing literature by examining the role of legal factors in determining insurance density across countries. Also, measures of risk aversion, loss probability, and price, which overcome limitations of proxies used in the existing literature on insurance demand, are analyzed. Using a panel data set, we apply a generalized methods of moments dynamic system estimator, which relaxes the assumption of strict exogeneity of the regressors and produces unbiased and efficient estimates. The results show a strong positive relationship between the protection of property rights and insurance consumption, which is robust to various model specifications and estimation techniques. Moreover, the results show the purchase of PCI is significantly and positively related to loss probability and income, as well as providing weaker evidence of a negative relationship with price.     

基于DFA方法的中国洪水保险定价研究

对洪水保险进行精确有效的定价十分困难.动态财务分析模型(DFA)能够有效的将多种因素综合在一起进行分析,弥补了以往洪水保险定价方法以单一时点统计数据作为定价基础的缺陷;再保险安排是洪水保险计划中的一个重要组成部分,购买60%比例再保险是最适当的;购买再保险能够极大的降低洪水保险计划的破产概率.