Behavioral bias and the demand for bicycle and flood insurance

Browne, Mark J.; Knoller, Christian and Richter, Andreas (2015): Behavioral bias and the demand for bicycle and flood insurance. In: Journal of Risk and Uncertainty, Vol. 50, No. 2: pp. 141-160

Abstract

With data from an insurer that provides coverage for both a low probability, high consequence (LPHC) risk (the flood peril) and a high probability, low consequence (HPLC) risk (bicycle theft), we investigate behavioral bias in the demand for insurance. Our analysis provides evidence which is consistent with a preference for insurance for HPLC risks over LPHC risks: we find that many more policyholders purchase add-on coverage to their homeowner’s insurance to cover the risk of bicycle theft than to cover the risk of loss due to flooding. In addition, we find mixed evidence on whether policyholders’ insurance coverage decisions are responsive to changes in their risk exposure. We find a strong relationship between wealth and the demand for both types of coverage.

• Item Type: Journal article
• Faculties: Munich School of Management > Institute for Risk Management and Insurance
• Subjects: 300 Social sciences > 330 Economics
• ISSN: 0895-5646
• Language: English