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Wind Insurance and Mitigation in the Coastal Zone

Author

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  • Daniel R. Petrolia
  • Joonghyun Hwang
  • Craig E. Landry
  • Keith H. Coble

Abstract

This paper presents the only study analyzing the decision to purchase wind coverage for individuals whose standard homeowner’s policy excludes wind, and one of very few analyses of the decision to undertake wind mitigation measures. Because these two decisions are closely related, a simultaneous mixed-process approach is used that allows for correlated disturbances across probit (insurance) and tobit (mitigation) equations. Results indicate a positive correlation between errors of the insurance and mitigation models; conditioning on covariates, households that hold wind insurance tend to engage in greater levels of wind mitigation.

Suggested Citation

  • Daniel R. Petrolia & Joonghyun Hwang & Craig E. Landry & Keith H. Coble, 2015. "Wind Insurance and Mitigation in the Coastal Zone," Land Economics, University of Wisconsin Press, vol. 91(2), pages 272-295.
    • Handle: RePEc:uwp:landec:v:91:y:2015:i:2:p:272-295
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    2. Andor, Mark A. & Osberghaus, Daniel & Simora, Michael, 2020. "Natural Disasters and Governmental Aid: Is there a Charity Hazard?," Ecological Economics, Elsevier, vol. 169(C).
    3. Kwabena Krah & Daniel R Petrolia & Angelica Williams & Keith H Coble & Ardian Harri & Roderick M Rejesus, 2018. "Producer Preferences for Contracts on a Risky Bioenergy Crop," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 40(2), pages 240-258.
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    6. Champ, Patricia A. & Meldrum, James R. & Brenkert-Smith, Hannah & Warziniack, Travis W. & Barth, Christopher M. & Falk, Lilia C. & Gomez, Jamie B., 2020. "Do actions speak louder than words? Comparing the effect of risk aversion on objective and self-reported mitigation measures," Journal of Economic Behavior & Organization, Elsevier, vol. 169(C), pages 301-313.
    7. Meri Davlasheridze & Qing Miao, 2019. "Does Governmental Assistance Affect Private Decisions to Insure? An Empirical Analysis of Flood Insurance Purchases," Land Economics, University of Wisconsin Press, vol. 95(1), pages 124-145.
    8. Swenja Surminski & Paul Hudson, 2017. "Investigating the Risk Reduction Potential of Disaster Insurance Across Europe," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 42(2), pages 247-274, April.
    9. Dylan Turner & Francis Tsiboe, 2022. "The crop insurance demand response to the Wildfire and Hurricane Indemnity Program Plus," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 44(3), pages 1273-1292, September.
    10. Eugene Frimpong & Jamie Kruse & Gregory Howard & Rachel Davidson & Joseph Trainor & Linda Nozick, 2019. "Measuring Heterogeneous Price Effects for Home Acquisition Programs in At‐Risk Regions," Southern Economic Journal, John Wiley & Sons, vol. 85(4), pages 1108-1131, April.
    11. Craig Landry & Dylan Turner, 2020. "Risk Perceptions and Flood Insurance: Insights from Homeowners on the Georgia Coast," Sustainability, MDPI, vol. 12(24), pages 1-22, December.
    12. Randy E. Dumm & David L. Eckles & Charles Nyce & Jacqueline Volkman-Wise, 2017. "Demand for Windstorm Insurance Coverage and the Representative Heuristic," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 42(2), pages 117-139, September.
    13. Frimpong, Eugene & Petrolia, Daniel & Harri, Ardian, 2017. "Community-level flood mitigation effects on household-level flood insurance and damage claims payments," Working Papers 254075, Mississippi State University, Department of Agricultural Economics.
    14. Petrolia, Daniel R., 2016. "Risk preferences, risk perceptions, and risky food," Food Policy, Elsevier, vol. 64(C), pages 37-48.
    15. Craig E. Landry & Dylan Turner & Daniel Petrolia, 2021. "Flood Insurance Market Penetration and Expectations of Disaster Assistance," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 79(2), pages 357-386, June.
    16. Welsch, David M. & Winden, Matthew W. & Zimmer, David M., 2022. "The effect of flood mitigation spending on flood damage: Accounting for dynamic feedback," Ecological Economics, Elsevier, vol. 192(C).
    17. W. J. Wouter Botzen & Howard Kunreuther & Erwann Michel-Kerjan, 2019. "Protecting against disaster risks: Why insurance and prevention may be complements," Journal of Risk and Uncertainty, Springer, vol. 59(2), pages 151-169, October.
    18. Osberghaus, Daniel, 2015. "The determinants of private flood mitigation measures in Germany — Evidence from a nationwide survey," Ecological Economics, Elsevier, vol. 110(C), pages 36-50.
    19. Yilin Zou & Alexia Stock & Rachel Davidson & Linda Nozick & Joseph Trainor & Jamie Kruse, 2020. "Perceived attributes of hurricane-related retrofits and their effect on household adoption," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 104(1), pages 201-224, October.
    20. Mol, Jantsje M. & Botzen, W.J. Wouter & Blasch, Julia E., 2020. "Behavioral motivations for self-insurance under different disaster risk insurance schemes," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 967-991.
    21. Dong Wang & Rachel A. Davidson & Joseph E. Trainor & Linda K. Nozick & Jamie Kruse, 2017. "Homeowner purchase of insurance for hurricane-induced wind and flood damage," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 88(1), pages 221-245, August.
    22. Chun-Min Zhang, 2020. "Seismic risk-coping behavior in rural ethnic minority communities in Dali, China," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 103(3), pages 3499-3522, September.
    23. Paul Hudson & Philip Bubeck & Annegret H. Thieken, 2022. "A comparison of flood-protective decision-making between German households and businesses," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 27(1), pages 1-22, January.
    24. William F. Vásquez & Pallab Mozumder, 2017. "Willingness to Pay for Hurricane-Resistant Home Improvement Programs: a Choice Experiment in Northeastern and Mid-Atlantic United States," Economics of Disasters and Climate Change, Springer, vol. 1(3), pages 263-276, October.
    25. Williams, Angelica & Coble, Keith H. & Williams, Brian & Dicks, Michael & Knippenberg, Ross, 2016. "Consumer Preferences for Pet Health Insurance," 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas 230144, Southern Agricultural Economics Association.

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    JEL classification:

    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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