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Natural Disasters: Exposure and Underinsurance

Author

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  • C. GRISLAIN-LETRÉMY

    (Insee)

Abstract

Insurance coverage against natural disasters remains low in many exposed areas. Limited insurance supply is commonly identified as a primary factor causing low insurance coverage. The French overseas departments provide an unusual combination of a well-developed natural disasters insurance supply in highly exposed regions. Indeed, the French natural disasters insurance system is guaranteed by the French government; first foreseen for continental France only, it was extended to overseas departments after Hurricane Hugo in 1989, in a state of emergency. This situation enables to analyze the determinants of insurance coverage on the demand side. Using unique household-level micro-data, I estimate a semi-structural model of insurance market which had not been empirically tested. The structural approach enables to 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 anticipated assistance, which crowds out insurance. Individual insurance decision is impacted by neighbors insurance choices via peer effects and via neighborhood eligibility for assistance.

Suggested Citation

  • C. Grislain-Letrémy, 2013. "Natural Disasters: Exposure and Underinsurance," Documents de Travail de l'Insee - INSEE Working Papers g2013-12, Institut National de la Statistique et des Etudes Economiques.
    • Handle: RePEc:nse:doctra:g2013-12
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    File URL: https://www.bnsp.insee.fr/ark:/12148/bc6p06zr6z2/f1.pdf
    File Function: Document de travail de la DESE numéro G2013-12
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    More about this item

    Keywords

    natural disasters; insurance; 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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