The effect of risk perception on the willingness to purchase hazard insurance—A case study in the Three Gorges Reservoir region, China

Abstract

Natural hazard insurance is widely recognized as an implement for reducing risk to adverse environmental change such as mountain hazards. Rural households' willingness to purchase (WTP) for mountain hazard insurance may be affected by their risk perception. Notably, individuals generally behave following prospect theory under uncertain threats of mountain hazards. This paper uses the survey data (N = 348) from four counties with the most severe mountain hazards in the Three Gorges Reservoir Region, China. Partial least squares structural equation modeling (PLS-SEM) is utilized to verify 13 hypotheses which are proposed based on the prospect theory. The results show that: (1) Risk perception can be divided into five dimensions, namely, Probability factor (perceptions of the likelihood of hazard occurrence); Controlled factor (confidence in human efforts to survive hazard); Fear factor (worry or nervousness of suffering disaster); Experience factor (hazards experiences); and Unknown factor (ignorance associated with disaster). (2) The unknown factor, controlled factor, probability factor, and experience factor have a significant influence on WTP. However, the fear factor does not affect WTP. (3) The five risk perception dimensions have a significant direct impact on each other. These results support the hypothesis that people have limited abilities to process information and help understand better the influence of risk perception on the insurance purchasing decision.