Can We Nudge Insurance Demand by Bundling Natural Disaster Risks with Other Risks?

32 Pages Posted: 28 Sep 2022

See all articles by Peter John Robinson

Peter John Robinson

VU University Amsterdam - Institute for Environmental Studies (IVM)

W.J.W. Botzen

VU University Amsterdam - Institute for Environmental Studies (IVM)

Abstract

Natural disaster risk is predicted to increase worldwide because of climate change. Insurance may be purchased to provide individuals financial resilience against the damages caused by disasters, however a key question for policymakers is whether disaster insurance penetration rates are impacted by including this coverage in a bundled policy alongside other perils rather than as a separate policy. We examine this question with data collected in an online experiment among 597 homeowners in the Netherlands and the United Kingdom (UK). Our findings show that demand is overall higher to insure separate risks than to cover all risks together in a bundled insurance policy in the UK, whereas no significant difference is found between demand for bundled insurance and single policy insurance in the Netherlands. This difference in preference across the two countries is partly associated with whether individuals have been flooded in the past, which is more often the case in the UK than the Netherlands. Our findings are also in line with several theoretical predictions according to expected utility theory, that risk aversion predicts aversion to more variant potential loss outcomes. Based on our results we suggest recommendations for policymaking and future research on this topic.

Keywords: Bundled insurance, economic experiment, expected utility theory, natural disasters, nudge.

Suggested Citation

Robinson, Peter John and Botzen, W.J.W., Can We Nudge Insurance Demand by Bundling Natural Disaster Risks with Other Risks?. Available at SSRN: https://ssrn.com/abstract=4231959 or http://dx.doi.org/10.2139/ssrn.4231959

Peter John Robinson (Contact Author)

VU University Amsterdam - Institute for Environmental Studies (IVM) ( email )

De Boelelaan 1087
Amsterdam, 1081HV
Netherlands

W.J.W. Botzen

VU University Amsterdam - Institute for Environmental Studies (IVM) ( email )

De Boelelaan 1115
Amsterdam, 1081 HV
Netherlands

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
107
Abstract Views
495
Rank
541,518
PlumX Metrics