A Reminder in the Air: Attention to Pollution and the Purchase of Critical Illness Insurance

Abstract

How do environmental conditions influence the purchase of critical illness insurance, and why? The mechanism for any potential relationship between them has substantial welfare and policy implications. Prior literature has found a positive relationship between supplementary health insurance and pollution in selected major cities in China. By examining nationwide serious illness insurance purchases under fluctuating air pollution levels across 258 cities in China from 2012 to 2016, we confirm a robust positive relationship between air pollution levels and insurance purchase timing, which is in line with the prior finding. However, we further hypothesize and empirically test whether indicators of public attention drive this result. Localized internet search data show that search frequencies for the “harmful effects of pollution” and related search terms are highly correlated with recent local air pollution levels. In addition, the level of news media coverage about air pollution sharply reduces the significance of the air pollution-critical illness insurance purchase relationship, showing that attention to pollution-related news drives this effect. The attention effect is also confirmed by comparing the influence of AQI variables as opposed to API, an earlier version of a pollution index which was not made widely available to the public. Furthermore, a survey of potential insurance consumers shows that current local air pollution does not influence individuals’ beliefs about future pollution in China, contributing to doubts about a projection-bias explanation of insurance purchase, previously discussed in the literature. Altogether, our evidence points to attention towards pollution as the primary reason for increased purchase of serious illness insurance during high air pollution time intervals.

Keywords: air pollution, critical illness insurance, attention, media, internet search

JEL Classification: G41, G52, I13, D83