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Natural Disters : Exposure and Underinsurance

Author

Listed:
  • Céline Grislain-Letremy

    (INSEE-CREST)

Abstract
Insurance coverage for natural disasters remains low in many exposed areas. A limited supply of insurance is commonly identified as a primary causal factor in this low insurance coverage. The French overseas departments provide a rare natural experiment of a well-developed supply of natural disasters insurance in highly exposed regions. The French system of natural disasters insurance is underwritten and regulated by the French government; instituted initially for metropolitan France only, it was extended to overseas departments in the state of emergency following Hurricane Hugo in 1989. This natural experiment makes it possible to analyze the determinants of insurance coverage on the demand side. Based on unique household-level microdata, I estimate an insurance market model which had not yet been empirically tested. Using this structural approach, I show that underinsurance in the French overseas departments is neither due to perception biases nor to unaffordable insurance, but mainly to uninsurable housing and to the anticipation of assistance, which crowds out insurance. Individual insurance decisions are influenced by neighbors’ insurance choices through peer effects and neighborhood eligibility for assistance

Suggested Citation

  • Céline Grislain-Letremy, 2013. "Natural Disters : Exposure and Underinsurance," Working Papers 2013-15, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2013-15
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    More about this item

    Keywords

    Natural Disters; Insurant; Disaster aid; Public assistance;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H84 - Public Economics - - Miscellaneous Issues - - - Disaster Aid
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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