Insurance as a Double-Edged Sword: Quantitative Evidence from the 2011 Christchurch Earthquake.

Abstract

We examine the role of business interruption insurance in business recovery following the Christchurch earthquake in 2011. First, we ask whether this kind of insurance increases the likelihood of business survival in the immediate (3-6 months) aftermath of a disaster. We found only very weak evidence that damaged firms covered by business interruption insurance had higher likelihood of survival post-quake compared with those firms without insurance. For the medium-term (2-3 years) survival of firms, our results show a more explicit role for insurance. Firms with business interruption insurance experienced increased productivity and improved performance following the catastrophe. Furthermore, organisations that received prompt and full payments of their claims had better recovery than those with protracted or inadequate claim payments (defined as less than 80% of their claim paid within 2.5 years). We find some tentative evidence that those who received inadequate payment did worse 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.