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An Analysis of the Demand for Earthquake Insurance
Author(s) -
Athavale Manoj,
Avila Stephen M.
Publication year - 2011
Publication title -
risk management and insurance review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.386
H-Index - 16
eISSN - 1540-6296
pISSN - 1098-1616
DOI - 10.1111/j.1540-6296.2011.01205.x
Subject(s) - actuarial science , earthquake scenario , insurance policy , property insurance , business interruption insurance , urban seismic risk , casualty insurance , business , general insurance , economics , income protection insurance , seismic hazard , seismology , geology
This research examines the decision to purchase earthquake insurance by analyzing data on earthquake insurance price and penetration in the New Madrid fault zone in Missouri. Earthquake risk is of concern to consumers, the insurance industry, industry regulators, and government agencies because of the potentially catastrophic nature of losses resulting from a major earthquake. Despite the significance of the earthquake peril, the recent literature does not contain estimates of the price and income elasticity of the demand for earthquake insurance. Our analysis indicates that homeowners acquire earthquake insurance because of risk considerations, at higher levels of risk the demand for earthquake insurance is higher, and the price of earthquake coverage does not provide incremental information in explaining the demand for earthquake coverage.