Influence of a private-public risk pool and an opt-out framing on earthquake protection demand for Canadian homeowners in Quebec and British Columbia.

Abstract

This article describes the design and analysis of web-based choice experiments that examine how the demand for earthquake protection in Quebec and British Columbia (BC), Canada, is influenced by the default option and the structure of the insurance plan. Homeowners in both provinces were given the opportunity to purchase protection against earthquake losses when presented with one of the following options: the current private insurance plan and proposed public-private Risk Pools with different levels of the public layer. The default frame was changed so the homeowner could either opt-in by purchasing this coverage or opt-out of being given this protection and receiving a premium discount. Assigning participants to the public-private Risk Pools rather than the current private insurance plan increases the likelihood of purchasing earthquake insurance protection by an odds ratio of 2.7 or greater in BC and Quebec. Furthermore, opt-out enrollment design substantially increases take-up of earthquake protection relative to opt-in enrollment. The policy implications of these findings are discussed.