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"In recent years, the damage caused by natural disasters has increased worldwide; this trend will only continue with the impact of climate change. Despite this, the role for the most common mechanism for managing risk - insurance - has received little attention. This book considers the contribution that insurance arrangements can make to society's management of the risks of natural hazards in a changing climate. It also looks at the potential impacts of climate change on the insurance sector, and insurers' responses to climate change. The author combines theory with evidence from the rich experiences of the Netherlands together with examples from around the world. He recognises the role of the individual in preparing for disasters, as well as the difficulties individuals have in understanding and dealing with infrequent risks."--Publisher's website

AbstractLittle is known about why individuals place either a high or a very low value on mitigating risks of disaster‐type events, like floods. This study uses panel data methods to explore the psychological factors affecting probability neglect of flood risk relevant to the zero end‐point of the probability weighting function in Prospect Theory, and willingness‐to‐pay for flood insurance. In particular, we focus on explanatory variables of anticipatory and anticipated emotions, as well as the threshold of concern. Moreover, results obtained under real and hypothetical incentives are compared in an experiment with high experimental outcomes. Based on our findings, we suggest several policy recommendations to overcome individual decision processes, which may hinder flood protection efforts.

AbstractWe examine mechanisms as to why insurance and individual risk reduction activities are complements instead of substitutes. We use data on flood risk reduction activities and flood insurance purchases by surveying more than 1000 homeowners in New York City after they experienced Hurricane Sandy. Insurance is a complement to loss reduction measures undertaken well before the threat of suffering a loss, which is the opposite of a moral hazard effect of insurance coverage. In contrast, insurance acts as a substitute for emergency preparedness measures that can be taken when a loss is imminent, which implies that financial incentives or regulations are needed to encourage insured people to take these measures. We find that mechanisms leading to preferred risk selection are related to past flood damage and a crowding out effect of federal disaster assistance as well as behavioral motivations to reduce risk.

AbstractTraditional cost-benefit analyses (CBAs) of flood risk reduction measures usually ignore distributions of damages over populations, which disadvantages the poor. Instead, a CBA based on social welfare includes individual social vulnerability through relative impacts on consumption. If vulnerabilities are high, floods are catastrophic and cause poverty, migration or indirect deaths, and risk reductions have high social welfare values. For non-catastrophic risks, social welfare values of risks are relatively higher for vulnerable low-income households. We present a framework to integrate social vulnerability into CBAs, and show how financial protection reduces social flood vulnerability and provides welfare benefits. A case study illustrates that traditional CBAs underestimate the social welfare value of flood risk reduction measures, up to a factor of 30. Data on financial protection is however scarce, which hampers estimation of the social welfare value in practice. A solution is to increase financial protection of individuals, in addition to offering physical flood protection.

AbstractThis study offers insights into factors of influence on the implementation of flood damage mitigation measures by more than 1,000 homeowners who live in flood‐prone areas in New York City. Our theoretical basis for explaining flood preparedness decisions is protection motivation theory, which we extend using a variety of other variables that can have an important influence on individual decision making under risk, such as risk attitudes, time preferences, social norms, trust, and local flood risk management policies. Our results in relation to our main hypothesis are as follows. Individuals who live in high flood risk zones take more flood‐proofing measures in their home than individuals in low‐risk zones, which suggests the former group has a high threat appraisal. With regard to coping appraisal variables, we find that a high response efficacy and a high self‐efficacy play an important role in taking flood damage mitigation measures, while perceived response cost does not. In addition, a variety of behavioral characteristics influence individual decisions to flood‐proof homes, such as risk attitudes, time preferences, and private values of being well prepared for flooding. Investments in elevating one's home are mainly influenced by building code regulations and are negatively related with expectations of receiving federal disaster relief. We discuss a variety of policy recommendations to improve individual flood preparedness decisions, including incentives for risk reduction through flood insurance, and communication campaigns focused on coping appraisals and informing people about flood risk they face over long time horizons.

AbstractTo improve preparedness for natural disasters, it is imperative to understand the factors that enable individual risk‐reduction actions. This study offers such insights using innovative real‐time (N = 871) and repeated (N = 255) surveys of a sample of coastal residents in Florida regarding flood preparations and their drivers during an imminent threat posed by Hurricane Dorian and its aftermath. Compared with commonly employed cross‐sectional surveys, our methodology better represents relationships between preparedness actions undertaken during the disaster threat and their drivers derived from an extended version of Protection Motivation Theory (PMT). The repeated survey allows for examining temporal dynamics in these drivers. Our results confirm the importance of coping appraisals and show that risk perceptions relate more strongly to emergency protection decisions made during the period of the disaster threat than to decisions made well before. Moreover, we find that several personal characteristics that we add to the standard PMT framework significantly relate to undertaking preparedness actions, especially locus of control and social norms. Significant changes in key explanatory variables occur following the disaster threat, including a decline in risk perception, a potential learning effect in coping appraisals, and a decline in risk aversion. Our results confirm the advantage of the real‐time and repeated survey approach in understanding both short‐ and long‐term disaster preparedness actions.

AbstractThis study adds to an emerging literature on the factors associated with individual perceptions of COVID‐19 risks and decision‐making processes related to prevention behaviors. We conducted a survey in the Netherlands (N = 3600) in June–July 2020 when the first peak of COVID‐19 infections, hospitalizations, and deaths had passed, and lockdown measures had been eased. Dutch policies relied heavily on individual prevention behaviors to mitigate a second infection wave. We examine whether biases and heuristics that have been observed in how people perceive and respond to other risks also apply to the newly emergent risks posed by COVID‐19. The results indicate that people simplify risk using threshold models and that risk perceptions are related with personal experiences with COVID‐19 and experiences of close others, supporting the availability heuristic. We also observe that prevention behavior is more strongly associated with COVID‐19 risk perceptions and feelings toward the risk than with local indicators of COVID‐19 risks, and that prevention behavior is related with herding. Support for government lockdown measures is consistent with preferences that may contribute to the not‐in‐my‐term‐of‐office bias. In addition, we offer insights into the role of trust, worry, and demographic characteristics in shaping perceptions of COVID‐19 risks and how these factors relate with individual prevention behaviors and support for government prevention measures. We provide several lessons for the design of policies that limit COVID‐19 risks, including risk communication strategies and appeals to social norms. Perhaps more importantly, our analysis allows for learning lessons to mitigate the risks of future pandemics.