We examine the role of business interruption (BI) insurance in business recovery following the Christchurch earthquake in 2011. First, we ask whether BI insurance increases the likelihood of business survival in the immediate (3-6 months) aftermath of a disaster. We find positive but statistically insignificant evidence that those firms that had incurred damage, but were covered by BI insurance, had higher likelihood of survival post-quake compared with those firms that did not have any insurance. For the medium-term (2-3 years) survival of firms, our results show a more explicit role for insurance. Firms with BI insurance experience increased productivity and improved performance following a catastrophe. Furthermore, we find that those organisations that receive prompt and full payments of their claims have a better recovery than those that had protracted or inadequate claims payments, but this difference between the two groups is not statistically significant. We find no statistically significant evidence that the latter group (inadequate payment) did any better than those organisations that had damage but no insurance coverage. In general, our analysis indicates the importance not only of adequate insurance coverage, but also of an insurance system that delivers prompt claim payments.
This is a post-peer-review, pre-copyedit version of an article published in 'The Geneva Papers on Risk and Insurance - Issues and Practice'. The final authenticated version is available online at: https://doi.org/10.1057/s41288-017-0067-y. The following terms of use apply: https://www.springer.com/gp/open-access/publication-policies/aam-terms-of-use.
This dissertation contains three essays on the impact of unexpected adverse events on student outcomes. All three attempt to identify causal inference using plausibly exogenous shocks and econometric tools, applied to rich administrative data. In Chapter 2, I present evidence of the causal effects of the 2011 Christchurch earthquake on tertiary enrolment and completion. Using the shock of the 2011 earthquake on high school students in the Canterbury region, I estimate the effect of the earthquake on a range of outcomes including tertiary enrolment, degree completion and wages. I find the earthquake causes a substantial increase in tertiary enrolment, particularly for low ability high school leavers from damaged schools. However, I find no evidence that low ability students induced by the earthquake complete a degree on time. In Chapter 3, I identify the impact of repeat disaster exposure on university performance, by comparing outcomes for students who experience their first earthquake while in university, to outcomes for students with prior earthquake exposure. Using a triple-differences estimation strategy with individual-by-year fixed effects, I identify a precise null effect, suggesting that previous experience of earthquakes is not predictive of response to an additional shock two years later. The final chapter investigates the impact of injuries sustained in university on academic performance and wages, using administrative data including no-fault insurance claims, emergency department attendance and hospital admissions, linked with tertiary enrolment. I find injuries, including minor injuries, have a negative effect on re-enrolment, degree completion and grades in university.
<b>New Zealand has experienced several strong earthquakes in its history. While an earthquake cannot be prevented from occurring, planning can reduce its consequences when it does occur. This dissertation research examines various aspects of disaster risk management policy in Aotearoa New Zealand.</b>
Chapter 2 develops a method to rank and prioritise high-rise buildings for seismic retrofitting in Wellington, the earthquake-prone capital city of New Zealand. These buildings pose risks to Wellington’s long-term seismic resilience that are of clear concern to current and future policymakers. The prioritization strategy we propose, based on multi-criteria decision analysis (MCDA) methods, considers a variety of data on each building, including not only its structural characteristics, but also its location, its economic value to the city, and its social importance to the community around it. The study demonstrates how different measures, within four general criteria – life safety, geo-spatial location of the building, its economic role, and its socio-cultural role – can be operationalized into a viable framework for determining retrofitting/demolition policy priorities.
Chapter 3 and chapter 4 analyse the Residential Red Zone (RRR) program that was implemented in Christchurch after the 2011 earthquake. In the program, approximately 8,000 homeowners were told that their homes were no longer permittable, and they were bought by the government (through the Canterbury Earthquake Recovery Authority).
Chapter 3 examines the subjective wellbeing of the RRR residents (around 16000 people) after they were forced to move. We consider three indicators of subjective wellbeing: quality of life, stress, and emotional wellbeing. We found that demographic factors, health conditions, and the type of government compensation the residents accepted, were all significant determinants of the wellbeing of the Red Zone residents. More social relations, better financial circumstances, and the perception of better government communication were also all associated positively with a higher quality of life, less stress, and higher emotional wellbeing.
Chapter 4 concentrates on the impact of this managed retreat program on RRR residents’ income. We use individual-level comprehensive, administrative, panel data from Canterbury, and difference in difference evaluation method to explore the effects of displacement on Red Zone residential residents. We found that compared to non-relocated neighbours, the displaced people experience a significant initial decrease in their wages and salaries, and their total income. The impacts vary with time spent in the Red Zone and when they moved away. Wages and salaries of those who were red-zoned and moved in 2011 were reduced by 8%, and 5.4% for those who moved in 2012. Females faced greater decreases in wages and salaries, and total income, than males. There were no discernible impacts of the relocation on people’s self-employment income.
We aim to investigate the role of insurance in business recovery following the devastating Christchurch earthquake in February, 22nd, 2011. We analyze data from two business surveys conducted after the earthquake to examine how insurance affected business operation in the aftermath of the earthquake both in the short-term and longer-term. For the short-term analysis, we use a combination of propensity score matching (PSM) and linear probability model (LPM) to analyze the data. We first estimate the propensity scores for insurance take-up of each firm conditional on the firm’s individual characteristics. Stratification based on the estimated propensity scores is used to match the treated (insured) and the control (uninsured) firms. We then estimate the probability of firms’ continuing operations with a set of control variables to account for the level of damage and disruption caused by the quake in each stratum. We find little evidence of any beneficial effect of insurance coverage on business continuity in the short-run. For the longer-term analysis, we analyze the available survey data using logistic regression. The result suggests that business interruption insurance significantly promotes increased level of long-term productivity for surviving firms following the earthquake.
The Canterbury earthquake sequence (2010-2011) was the most devastating catastrophe in New Zealand‘s modern history. Fortunately, in 2011 New Zealand had a high insurance penetration ratio, with more than 95% of residences being insured for these earthquakes. This dissertation sheds light on the functions of disaster insurance schemes and their role in economic recovery post-earthquakes. The first chapter describes the demand and supply for earthquake insurance and provides insights about different public-private partnership earthquake insurance schemes around the world. In the second chapter, we concentrate on three public earthquake insurance schemes in California, Japan, and New Zealand. The chapter examines what would have been the outcome had the system of insurance in Christchurch been different in the aftermath of the Canterbury earthquake sequence (CES). We focus on the California Earthquake Authority insurance program, and the Japanese Earthquake Reinsurance scheme. Overall, the aggregate cost of the earthquake to the New Zealand public insurer (the Earthquake Commission) was USD 6.2 billion. If a similar-sized disaster event had occurred in Japan and California, homeowners would have received only around USD 1.6 billion and USD 0.7 billion from the Japanese and Californian schemes, respectively. We further describe the spatial and distributive aspects of these scenarios and discuss some of the policy questions that emerge from this comparison. The third chapter measures the longer-term effect of the CES on the local economy, using night-time light intensity measured from space, and focus on the role of insurance payments for damaged residential property during the local recovery process. Uniquely for this event, more than 95% of residential housing units were covered by insurance and almost all incurred some damage. However, insurance payments were staggered over 5 years, enabling us to identify their local impact. We find that night-time luminosity can capture the process of recovery; and that insurance payments contributed significantly to the process of local economic recovery after the earthquake. Yet, delayed payments were less affective in assisting recovery and cash settlement of claims were more effective than insurance-managed repairs. After the Christchurch earthquakes, the government declared about 8000 houses as Red Zoned, prohibiting further developments in these properties, and offering the owners to buy them out. The government provided two options for owners: the first was full payment for both land and dwelling at the 2007 property evaluation, the second was payment for land, and the rest to be paid by the owner‘s insurance. Most people chose the second option. Using data from LINZ combined with data from Stats NZ, the fourth chapter empirically investigates what led people to choose this second option, and how peer effect influenced the homeowners‘ choices. Due to climate change, public disclosure of coastal hazard information through maps and property reports have been used more frequently by local government. This is expected to raise awareness about disaster risks in local community and help potential property owners to make informed locational decision. However, media outlets and business sector argue that public hazard disclosure will cause a negative effect on property value. Despite this opposition, some district councils in New Zealand have attempted to implement improved disclosure. Kapiti Coast district in the Wellington region serves as a case study for this research. In the fifth chapter, we utilize the residential property sale data and coastal hazard maps from the local district council. This study employs a difference-in-difference hedonic property price approach to examine the effect of hazard disclosure on coastal property values. We also apply spatial hedonic regression methods, controlling for coastal amenities, as our robustness check. Our findings suggest that hazard designation has a statistically and economically insignificant impact on property values. Overall, the risk perception about coastal hazards should be more emphasized in communities.
