Wildfire Insurance, Information, and Self-Protection

Abstract

Like other climate-related disasters, wildfires are intensifying. Property owners can reduce their vulnerability to wildfire losses but are not well informed about the costs and benefits of available self-protection investments. Technological advances mean that insurers are increasingly able to monitor household mitigation behavior. We revisit the problem of self-protection from risk in a setting where households have incomplete insurance and limited information about self-protection investments. Insurer discounts for self-protection generate additional value by informing households about self-protection investments that also reduce uninsured losses. This information provision increases the responsiveness of self-protection to ex post disaster assistance, with implications for optimal government transfers.