期刊
JOURNAL OF RISK AND INSURANCE
卷 89, 期 2, 页码 273-310出版社
WILEY
DOI: 10.1111/jori.12363
关键词
climate risk; decision making under risk and uncertainty; National Flood Insurance Program; public policy evaluation; risk attitudes
资金
- Center for Risk and Economic Analysis of Terrorism Events
- Travelers-Wharton Partnership for Risk Management Fund
- Complex Engineering Systems Institute [ANID APOYO/BASAL AFB180003]
- ANID FONDECYT [1191745]
- Zurich Insurance Foundation
- Wharton Risk Management and Decision Processes Center
Research indicates that consumers often purchase higher coverage limits for home insurance, rather than following the optimal coverage range. This behavior may be due to high premium loads, as well as industry practices and decision-making distortions.
Households' insurance coverage against severe losses is central to their financial resilience. Features of the US National Flood Insurance Program offer insights into consumers' coverage over large stakes that are not typically possible in other markets. We examine the coverage limits (the amount of a home's value that is insured) of over 100,000 households. We determine the optimal coverage based on a standard expected utility calibration. This model indicates that consumers should purchase a low limit and retain much of their exposure due to the high premium loads in our sample. Instead, households in the sample typically fully insure their homes, paying premiums well above their contract's expected value. We investigate possible explanations for homeowners' coverage limits and conclude that some combination of industry practices that emphasize fully insuring and probability distortions in decision-making are likely explanations.
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