Catastrophes and the Demand for Life Insurance
40 Pages Posted: 29 Jan 2009 Last revised: 27 Jul 2010
Date Written: July 23, 2010
Prior research suggests that the occurrence of a catastrophe may lead to increases in risk mitigation, risk perception, and the demand for insurance. Given the extensive damage inflicted by major natural disasters, such a phenomenon is intuitive for property risk. However, the literature includes theory and evidence that suggest a broader behavioral perspective, and we therefore examine the possible link between catastrophes and subsequent demand for insurance against mortality risk. Based on U.S. state-level data for the period 1997 through 2008, we provide evidence of a significant positive relationship between catastrophes and life insurance demand. The finding holds both for states directly affected by the event and for neighboring states. In addition, evidence suggests that post-catastrophe life insurance demand is sensitive to the size of the catastrophe.
Keywords: Catastrophes, Natural Disasters, Insurance Demand, Life Insurance
JEL Classification: C23, D80, G22, Q54
Suggested Citation: Suggested Citation