Behavioral bias and the demand for bicycle and flood insurance

Mark Browne (), Christian Knoller () and Andreas Richter ()

Journal of Risk and Uncertainty, 2015, vol. 50, issue 2, 160 pages

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. Copyright Springer Science+Business Media New York 2015

Keywords: Decision making under risk; Risk assessment; Insurance demand; D81; D83; D84 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (29)

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DOI: 10.1007/s11166-015-9212-9

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