The Impact of a Government Risk Pool and an Opt-Out Framing on Demand for Earthquake Protection

33 Pages Posted: 11 Aug 2021

See all articles by Howard Kunreuther

Howard Kunreuther

National Bureau of Economic Research (NBER); University of Pennsylvania - Wharton Risk Management and Decision Processes Center

Lynn Conell-Price

Consumer Financial Protection Bureau

Paul Kovacs

Independent; Institute for Catastrophic Loss Reduction

Katsu Goda

Western University, Canada

Multiple version iconThere are 2 versions of this paper

Date Written: August 3, 2021

Abstract

This paper describes the design and analysis of a web-based choice experiment that examines how the demand for earthquake protection in Quebec and British Columbia is influenced by the default option and the structure of the insurance plan. Homeowners in both provinces were given the opportunity to purchase protection against earthquake losses when presented with one of the following options: the current private insurance plan, a high deductible private insurance plan, and a proposed public-private risk pool. The default frame was changed so the homeowner could either opt-in by purchasing this coverage or opt-out of being given this protection and receiving a premium discount. Assigning participants to a public-private risk pool rather than the current private insurance plan increases the likelihood of purchasing earthquake protection by 151%. The opt-out frame leads to a likelihood greater than 1.6 of purchasing coverage relative to the opt-in frame when given the same plan structure. The policy implications of this finding are discussed.

Keywords: earthquake, insurance, default options, risk pool, opt-out

JEL Classification: D81, G22, H12, H44

Suggested Citation

Kunreuther, Howard C. and Kunreuther, Howard C. and Conell-Price, Lynn and Kovacs, Paul and Kovacs, Paul and Goda, Katsuichiro, The Impact of a Government Risk Pool and an Opt-Out Framing on Demand for Earthquake Protection (August 3, 2021). Available at SSRN: https://ssrn.com/abstract=3901895 or http://dx.doi.org/10.2139/ssrn.3901895

Howard C. Kunreuther (Contact Author)

National Bureau of Economic Research (NBER)

University of Pennsylvania - Wharton Risk Management and Decision Processes Center ( email )

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Philadelphia, PA 19104
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Lynn Conell-Price

Consumer Financial Protection Bureau ( email )

United States

Paul Kovacs

Independent

Institute for Catastrophic Loss Reduction ( email )

Canada

Katsuichiro Goda

Western University, Canada ( email )

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