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To insure or not to insure? Analysis of foresters' willingness-to-pay for fire and storm insurance

Sauter, Philipp A., Möllmann, Torsten B., Anastassiadis, Friederike, Mußhoff, Oliver, Möhring, Bernhard
Forest policy and economics 2016 v.73 pp. 78-89
climate change, disasters, forest industries, forest policy, foresters, forests, funding, insurance, markets, privatization, risk, storms, willingness to pay
Natural catastrophes in forests have become more damaging in recent years and are expected to further increase according to climate change scenarios. Currently, governmental measures mostly focus on providing financial support, such as direct payments, to forest owners after disasters. However, in the light of more weather extremes, this could lead to a heavier financial burden for national budgets. Therefore, the current financial support system has to be reconsidered with regard to privatizing foresters' risks. Insurance could play a key role, but in many countries forests are rarely insured. In order to explain insurance coverage, we analyzed foresters' preferences regarding fire and storm insurance, which are expressed as their willingness-to-pay (WTP). Therefore, we measured the risk attitude and conducted a discrete choice experiment with 137 German foresters, using various policy and forest enterprise scenarios. Our results show that most foresters have a very low WTP for insurance, and individual risk attitude was not of significant influence. The WTP was higher for fire than for storm insurance, presumably due to liquidity preservation motives. Policy programs involving unconditional support after disaster reduced the WTP. Instead, subsidized insurance premiums increased the WTP and thus, should be considered to establish an efficient insurance market.