Do Households Respond to Climate Change? Evidence from the U.S. Homeowners Insurance Market

Speaker：Sun Tao (Associate Professor, Lingnan University, Hong Kong)

Host：Peng Haoran, Professor, Lingnan College

Time and Date：14:30, May. 5, 2023

Venue: Wang Daohan Conference Room(101), Lingnan Hall

Language: English + Chinese

Abstract:

This paper is coauthored with Professor Hong Zou (University of Hong Kong) and Professor Tyler Leverty (University of Wisconsin - Madison). We examine whether and to what extent people’s beliefs regarding climate change affect their financial decisions through the lens of homeowners insurance. We document a positive relationship between survey-based U.S. risk perception of climate change and average homeowners insurance coverage per house in a state. The relationship is stronger in states with stronger political orientation towards the Democratic Party. In a placebo test, we find that risk perception of climate change does not affect renters’ insurance demand, indicating that U.S. households only respond to climate change when they perceive such change likely affecting their houses as the most valuable asset. The results are robust to an instrumental variable estimation using a state-level drought severity index as an instrument. Our findings have important implications for how climate change affects U.S. households’ risk management decisions.

Profile of the speaker:

Prof. Tao Sun is an Associate Professor in the Department of Finance and Insurance at Lingnan University. He received his Ph.D. degree in Risk Management and Insurance from Temple University. His current research interests include systemic risk and financial stability, insurance economics, risk modeling, mortality/longevity risk management, and corporate risk management. Dr. Sun has publications in top tier journals in risk management, insurance and actuarial science, including the Journal of Risk and Insurance, and Insurance: Mathematics and Economics. He serves as referee for the Journal of Risk and Insurance, Insurance: Mathematics and Economics, Risk Management and Insurance Review, the North American Actuarial Journal, and the Journal of Insurance Issues.