Natural Disasters: Exposure and Underinsurance
Forthcoming, Annals of Economics and Statistics
35 Pages Posted: 4 Jul 2014 Last revised: 7 Feb 2017
Date Written: January 30, 2017
The insurance coverage for natural disasters remains low in many exposed areas, particularly in Latin America and the Caribbean. Reduced availability or unaffordability of insurance are commonly identified as the primary causes for this low insurance coverage. The French overseas departments provide a rare example of a well-developed and regulated supply of natural disaster insurance. They offer an exceptional opportunity to analyze the demandside determinants of insurance coverage in these highly exposed regions. Based on unique household-level micro-data, I estimate a structural model of insurance supply and demand. Because my data set combines detailed information on both insured and uninsured households, I can analyze the extensive margin in the insurance market, that is, the insurance take-up. I show that the low insurance take-up rate in the French overseas departments is mainly due to uninsurable housing and the anticipation of assistance.
Keywords: natural disasters, insurance, disaster aid
JEL Classification: Q54, G22, H84, D12
Suggested Citation: Suggested Citation