Impact of Climate Risk on Property Insurance Demand: An Empirical Study

Thesis Abstract

This study investigates how climate risk influences demand for property insurance in urban and peri-urban contexts, addressing the gap between rising exposure to climate-related hazards and insurer uptake in developed and emerging markets. The problem stems from increasing frequency and severity of extreme weather events, which may both heighten perceived risk and constrain affordability, potentially impacting premium acceptability, policy uptake, and risk mitigation behavior. The aim is to quantify the relationship between climate risk exposure, risk perception, and property insurance demand, and to identify moderating factors such as income, risk awareness, and insurance literacy. Specific objectives are (1) to measure the effect of exposure to climate hazards ( floods, high wind, heat stress) on property insurance demand; (2) to examine how risk perception mediates the relationship between climate risk and insurance demand; (3) to assess the moderating roles of income, dwelling type, and prior loss experience; (4) to evaluate the influence of insurer product features (deductibles, coverage breadth, bundling) on demand under climate risk scenarios; and (5) to develop policy and industry recommendations for enhancing insurance take-up in climate-affected regions. The study adopts a cross-sectional mixed-methods design, integrating quantitative survey data with qualitative insights to enhance interpretation. The target population comprises residential property owners in three metropolitan regions with varying climate exposures. A stratified random sample of 1,200 households will be surveyed, with an expected response rate of 70%, yielding an analyzable dataset of approximately 840 respondents. In-depth interviews will be conducted with 25–30 insurance practitioners and risk managers to triangulate findings and reveal market-level dynamics. Data collection instruments include a structured questionnaire operationalizing climate risk exposure (local hazard indices, past loss events), insurance demand indicators (policy ownership, willingness to insure, coverage levels, premium affordability), risk perception scales, and socio-demographic variables; and a semi-structured interview guide for industry stakeholders. Validity and reliability will be ensured through pre-testing, Cronbach’s alpha assessment for multi-item scales, and factor analysis for construct validity. Analytical procedures will involve descriptive statistics to summarize exposure and demand patterns, and econometric modeling to test hypotheses. Regression analyses (logistic and OLS) will assess the impact of climate risk exposure on the likelihood of owning property insurance and on the level of coverage, controlling for income, education, and dwelling characteristics. Mediation analysis, following the steps of Baron and Kenny and complemented by bootstrapped confidence intervals, will examine risk perception as a mediator between climate risk and insurance demand. Moderation effects of income, dwelling type, and prior loss experience will be tested via interaction terms. A propensity score matching approach will be employed to address potential self-selection bias between households with varying insurance literacy. The qualitative data from interviews will be analyzed using thematic analysis to extract market and behavioral insights that explain observed quantitative patterns and to identify barriers to demand under climate risk. Theoretical anchoring will draw on Protection Motivation Theory to frame risk communication and behavioral responses, and the Theory of Planned Behavior to interpret intention-behavior gaps in insurance uptake. Expected findings anticipate that higher climate risk exposure will correlate positively with demand for property insurance, but that the strength of this relationship will be mediated by risk perception and moderated by income and prior loss experience. It is anticipated that product features such as broader coverage and bundled offerings will amplify demand among higher-risk households, while affordability constraints may suppress uptake among lower-income groups. The study is expected to reveal regional heterogeneity in demand drivers and highlight the pivotal role of risk communication and trusted information sources in shaping perceptions. The research contributes to knowledge by integrating climate risk analytics with consumer demand for property insurance, clarifying how risk perception and product attributes interact to influence uptake, and providing evidence-based guidance for insurers and policymakers on pricing, product design, and outreach in climate-affected markets. It will inform models of insurance demand under climate uncertainty and offer policy recommendations for increasing resilience through sustainable insurance penetration, including targeted subsidies or tiered coverage schemes, transparent communication of climate risk, and incentivized risk mitigation. The study concludes that coordinated efforts among regulators, insurers, and community organizations are essential to align risk exposure with affordable, accessible property insurance, thereby reinforcing financial protection for households facing climate-related hazards.