The Demand for Homeowners Insurance with Bundled Catastrophe Coverage
AbstractThis paper analyzes the demand for homeowners insurance in markets subject to catastrophe losses and where consumers have choices in configuring their coverage for catastrophe and non-catastrophe perils. We estimate the demand for homeowner insurance in Florida and New York using two-stage least squares regression with advisory indicated loss costs as our proxy for the quantity of real insurance services demanded. We decompose the demand for insurance into the demand for coverage of catastrophe perils (i.e., hurricanes or windstorms) and the demand for non-catastrophe coverage and estimate these demand functions separately. Our results are relatively consistent in New York and Florida, including evidence that catastrophe demand is more price elastic than non-catastrophe demand. We also find evidence that consumers value options that expand coverage, buy more insurance when it is subsidized through regulatory price constraints, and consider state guaranty fund provisions when purchasing insurance.
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Bibliographic InfoPaper provided by Wharton School Center for Financial Institutions, University of Pennsylvania in its series Center for Financial Institutions Working Papers with number 02-06.
Date of creation: Jan 2002
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Other versions of this item:
- Martin F. Grace & Robert W. Klein & Paul R. Kleindorfer, 2001. "The Demand for Homeowners Insurance with Bundled Catastrophe Coverages," Working Paper Series: Finance and Accounting 69, Department of Finance, Goethe University Frankfurt am Main.
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- Willig, Robert D, 1976. "Consumer's Surplus without Apology," American Economic Review, American Economic Association, vol. 66(4), pages 589-97, September.
- Paul Kleindorfer & Howard Kunreuther, 1999. "Challenges Facing the Insurance Industry in Managing Catastrophic Risks," NBER Chapters, in: The Financing of Catastrophe Risk, pages 149-194 National Bureau of Economic Research, Inc.
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- Alexander Harin, 2004. "Arrangement Infringement Possibility Approach: Some Economic Features of Large-Scale Events," Risk and Insurance 0409002, EconWPA.
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