The Demand For Catastrophe Insurance

Since the last half century, our world is facing large-scale risks at an increasing pace. We are more vulnerable to extreme events as a result of the increasing population, economic growth and social development. These natural and man-made disasters have caused severe damage. How to deal with the catastrophes and by what solutions transfer the catastrophe risks are now coming to forefront of the scientists. In particular, catastrophe insurance—the most common risk management, are drawing the attentions of our community. Government, industry, social organizations, enterprises or experts, academics, individuals, are beginning to focus on the catastrophe insurance issue.On the other hand, the conclusions and guidance of studies based on the conventional economics assumptions are questioned by the psychology and behavioral science. In particular, with the development of behavioral economics, bounded rationality and heterogeneity are absorbing in the applied research, posed challenges to classical economics paradigm. In fact, several years ago, we have surrendered to our perception and our mental. Combined with the background of above, people began to reflect: Why traditional economics paradigm conclusions contradict to the facts? What aspects have influence the behavior of catastrophe insurance demand? What factors led to the insufficient of demand for catastrophe insurance?To address these questions, the dissertation focuses on the following parts of the contents to profound thinking and argumentation:Part Ⅰ:fundamental theories. This part is mainly to solve the basic concept, scope, and theoretical explanation of the demand for catastrophe insurance. Include:Introduction (Chapter1). introduction to the background, process and the findings of my research; reviews and outlook of the existing literature and theory. This chapter argues that: Research on catastrophe insurance demand has both practical significance and theoretical significance; therefore, it’s established the fundamental theory analysis, multi-level comparisons, and empirical analysis as the study methods;through reviewing the literature of the demand for catastrophe insurance around economics/psychology/sociology perspectives, proposed some insufficient and three possible innovation as follows:paradigm shift, interdisciplinary, contents and conclusions. General Analysis of the Demand for Catastrophe Insurance (Chapter2), conceptual described and the demarcation of catastrophe risk, catastrophe insurance, catastrophe insurance demand; and based on traditional economics paradigm to analysis the demand for catastrophe insurance. This chapter argues that: Catastrophe risk with multiple features and therefore worthy of concern; major catastrophe risks, including earthquakes, hurricanes, floods and landslides; catastrophe insurance/demand is different from general insurance/demand; under classical economics paradigm, the Expected Utility Theory and the Prospect Theory proves the demand for catastrophe insurance will be subject to economic factors and psychological factors; Thus established the two analysis dimensions as follow: Purchasing power and demand behavior.Part Ⅱ: demand analysis. This part focuses on factors, paths, and effectiveness of catastrophe insurance demand. Include:Purchasing Power Analysis (Chapter3), explain the concept, construction, influence factors, and the conduction path of the catastrophe insurance purchasing power. This chapter argues that: The purchasing power of the catastrophe insurance combined with insurability and affordability: influenced by price, income, and wealth; have impact on the demand for catastrophe insurance through different paths. Demand Behavior Analysis (Chapter4), within the framework of the extended Theory of Planned Action, catastrophe insurance demand behavior could be explained by the Risk Perception and Risk Communication. This chapter argues that: Catastrophe insurance demand behavior influenced by the unknown factor, fear factor, trust, and attitude; through the individual cognitive and behavioral bias, conducted to demand for catastrophe insurance. Catastrophe Insurance Demand Behavior: Evidence of Risk Perception (Chapter5), empirical analysis for catastrophe insurance demand behavior from the perspective of risk perception. This chapter argues that: Seismic risk is the China’s most concerned catastrophe risk—until now, therefore more suitable for priority pilot as catastrophe insurance: people are willing to pay for other risk management measures other than insurance, possibly attributed to the negative image of the insurance industry; the risk perception significantly affect the demand for catastrophe insurance, and it is the best chance to Implementation of catastrophe insurance scheme; the heuristic bias and overconfidence will dampen the demand for catastrophe insurance. Catastrophe Insurance Demand Behavior: Evidence of Risk Communication (Chapter6), empirical analysis for catastrophe insurance demand behavior from the perspective of risk communication. This chapter argues that:Seismic risk communication is far from satisfaction, for people questioned the immediacy, accuracy, opening, and risk knowledge on the communication process; the Government and the Seismological Bureau still worth trusted but slightly, means that the relevant departments of risk communication strategy exists improvement space; given the recognitions of functions, the insurance industry held relatively negative attitudes from persons and therefore needs to make great efforts to improve self-image; cognitive and behavioral bias such as framing effect and ripple effect may have adverse effects on catastrophe insurance demand behavior.Part III:reality analysis. This part reveals the history and present situation of China’s demand for catastrophe insurance; experiences from the foreign demand for catastrophe insurance; policies promoted the demand for catastrophe insurance. Include:Reality Comparisons of Demand for Catastrophe Insurance (Chapter7), comparisons among different regions at domestic and abroad, different stages of development of catastrophe insurance in China. This chapter argues that: International catastrophe insurance experience has shown that, mandatory insurance is the shortcut to raise the demand for catastrophe insurance; effective risk communication mechanism will ease the dissatisfaction of compulsory measures and rational public risk behaviors; China’s past catastrophe insurance pilot is the valuable experience, however, without promotion to the greater regions, resulting the shortage of both supply and demand in nowadays. Policies to Promotion the China’s Demand for Catastrophe Insurance (Chapter8), make policy recommendations to enhance the demand for catastrophe insurance in China within different modes. This chapter argues that: current environment of China’s demand for catastrophe insurance is improving gradually; however, the current disaster relief system is not conducive to the cultivation of the demand for catastrophe insurance; then put forward policies to improve the demand for catastrophe insurance in China. Conclusions and Prospects (Chapter9), generalization of the basic conclusions of this dissertation and proposed research prospects. This chapter argues that: study on the demand for catastrophe insurance is a continuous work, given the innovative and prospective in this dissertation, however, there are still many deficiencies needs to be further development and improvementTaken together, I believe that this job has made three of the following innovation:The first is the paradigm shift. To understand the people’s economic behavior, we must understand their mental processes and consciousness. This has become the consensus of many economists. As Akerlof said, the studies based on the psychological, cognitive, thinking, consciousness and other psychological and social factors, are becoming the trend of post-war economic research...Realistic assumptions on the basis of psychological observation and social observation are easier to explain the most macroeconomic phenomena, to explain why human behavior is always based on the cognitive biases, equality, justice, herd mentality and so on. Akerlof’s statement represents the mainstream of economics research has begun to move closer to the behavior and psychological research, closer to the real-world heterogeneity. As the neo-classical economics absorbed the paradigm of mathematics and psychology and therefore achieve improvement and growth, only continue to maintain the accepted attitude to paradigm could economics catch the main trend. In the domestic insurance demand researches, signs of a paradigm shifting has begun to appearing, but the traces of the neo-classical assumptions are still everywhere. People do researches with the new theory or new methods or new issues still under the traditional paradigm. This dissertation therefore is based on the background of new economics study trends and the domestic blanks, in the context of improvement and innovation of traditional insurance economics paradigm, absorbing the paradigm of psychology, sociology, Prospect Theory, the extended Theory of Planned Action, Risk Perception, and Risk Communication, to explain the demand for catastrophe insurance. This is the key innovation and highlight of this dissertation.The followed is interdisciplinary combination. Demand is the economics phenomenon; is the process and results of human actions; is the human conscious activity. People live in the diversified and complex social environments. The individual physical, psychological and physical characteristic is different. Research on the demand for catastrophe insurance, firstly relates to the basic theory and research methods of economics, finance, and insurance; from the perspective of behavioral theory, secondly related to the knowledge and conclusions of psychology, communication, culture, and sociology. Therefore, the object of this job determined the methods are of originality and comprehensive. This comprehensive is not a simple ism or lack of relevance generalization, but a comprehensive with sustained, broad and deep grasp of the background knowledge, thus not only an innovation of method, but also an innovation of interdisciplinary approaches integrated.The last is the innovation of contents and conclusions. As Mises mentioned, human action is a conscious act; is the will of the purposes which transformed into action. Based on this view, research from behavior theory is an innovation. In particular, this paper are based on the extended Theory of Planned Action, drawing on the research methods and knowledge structure of risk perception and risk communication, collecting the first-hand psychological data, using of various statistical analysis methods to analysis the demand for catastrophe insurance. The relevant literatures so far in China are relatively insufficient. Past literature attributed the psychological and cultural factors which affect (catastrophe) insurance demand to the risk sense and the traditional concept that cannot be quantified. In my opinion, this point is some sort of insufficient. Through theoretical and empirical analysis, present coming to the conclusions that the psychological and cultural factors affecting the demand for catastrophe insurance in China, belongs to risk perception and risk communication areas, further clarify the boundary of the set of variables and effectiveness, is another bright spot.