Riders on the storm: hurricane risk and the coastal insurance decision

This paper utilizes cross-sectional, household-level, survey data combined with data on subjective risk perceptions and experimentally derived risk preferences to analyze the decision to insure against losses resulting from hurricanes. Our sample encompasses 670 individuals in five states of the United States Gulf Coast Region (Texas, Louisiana, Mississippi, Alabama, and Florida). This study represents one of the few papers to examine wind insurance empirically and the only study to examine flood insurance, wind insurance, and mitigation behavior simultaneously in the coastal context. Because these decisions are closely related, we employ a contemporaneous, mixed-process regression which allows for correlated error terms across a random-effects bivariate probit model (flood/wind insurance) and a Poisson Log-Normal count model (mitigation). Results indicate positive and statistically significant correlations between the errors of the insurance and mitigation models but no significant correlation between the disturbance terms of the two insurance models, conditioned on the covariates.