Catastrophes and the Demand for Life Insurance

Abstract:     
Prior research suggests that the occurrence of a catastrophe may lead to increases in risk perception, risk mitigation, and insurance purchasing behavior. Given the extensive damage that often is inflicted by natural disasters, such a phenomenon is intuitive for property risks. Similarly, we posit that the occurrence of catastrophes also may be associated with an increased demand for coverage against mortality risk. Based on U.S. state-level data for the period 1994 through 2004, we provide evidence of a significant relationship between catastrophes and life insurance demand, both for states directly affected by the event and for neighboring states.

Keywords: Catastrophes, Natural Hazards, Insurance Demand, Life Insurance

JEL Classifications: C23, D80, G22, Q54

Working Paper Series