Income protection insurance

Self-insurance

Philosophy

General insurance

Business

Health care

Actuarial science

Economics

Microeconomics

Casualty insurance

Theology

Flood insurance

Moral hazard

Incentive

Key person insurance

Health insurance

Group insurance

Morale hazard

Economic growth

Property insurance

Auto insurance risk selection

Insurance policy

Flood myth

Risk pool

Journal of Economic Behavior & Organization

This paper presents a lab-in-the-field experiment with 2111 Dutch homeowners in floodplain areas to examine the impacts of financial incentives and behavioral motivations for self-insurance under different flood insurance schemes. We experimentally varied the insurance type (mandatory public versus voluntary private) and the availability of a premium discount incentive for investing in flood damage mitigation measures. This set-up allowed us to examine the existence of moral hazard, advantageous selection and the behavioral motivations of individual agents who face these different insurance types, without the selection bias that makes a causal inference from survey studies problematic. The main results show that a premium discount can increase investments in self-insurance under both private and public insurance. Moreover, we find no support for moral hazard in our natural disaster insurance market, but we do find a substantial share of cautious people who invest both in private insurance as well as in self-insurance, indicating advantageous selection. The results have implications for the design of insurance schemes to cope with increasing natural disaster risks.

Behavioral motivations for self-insurance under different disaster risk insurance schemes