Q&A
The findings were very insightful. I am interested to know why insurance should be seen as a necessity or not as a luxury good if a large proportion of the population can't even afford insurance, especially when they may face similar challenges of losing their job and facing natural disasters?
Economists tend to see insurance as a necessity. They assume that 'rational' households protect themselves from risk by accessing insurance markets. Hence it is important to examine if ordinary households - not only 'irrational' households - are not relying on insurance as a matter of course.
Extensive vs intensive margins - people in stress reduce spending on insurance but does this mean that some quit insurance completely or just reduce their level of insurance? It seems the implications will differ depending on whether it is an intensive vs extensive margin?
We can't see this level of detail in the data but we can assume that those who spend less probably have less coverage.
Interested to know why home insurance is seen as necessary if a large proportion of the population can't afford home insurance or even a home? There seems to be an assumption that there is underinsurance where any person cuts their insurance coverage?
Economists assume that 'rational' households will access insurance markets to cover their risk exposure. This paper contributes to the body of research that shows underinsurance is a problem for 'ordinary' middle-income households as well as those in a more entrenched state of financial stress. In this, the paper maintains standard assumptions in economics about what is optimal and what is underinsurance.