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Abstract:
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We employ non-parametric analysis and agent-based decision models to investigate changes in salient homeowners insurance coverage after houses are retrofitted to be more resilient to windstorms and receive insurance discounts on the wind portion of the premium. We use unique insurance policy data from homeowners in Alabama to test for differences in the moments of salient insurance policy attributes before and after the policy changes. We find a statistically significant increase in coverage for dwelling, damage on others property, liability protection, and ordinance law with the new/modified insurance policies. On the contrary, we find significant decrease in coverage for personal property and additional living expenses. Thus, reveals that the Fortified process induces policy holders to take a closer look at their policies and shift savings realized from premium discounts to cover other peril. These decisions have the potential to shrink homeowners insurance protection gap, smooth wealth (home equity), and ultimately increase the welfare of homeowners.
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