A Feasibility Study to Offer Earthquake Insurance in Tehran

Traditional insurance principles for insurability require that there should be sufficient demand to yield appropriate levels of income revenue for insurers to supply the coverage. We study the provision of earthquake insurance and investigate the number of factors influencing demand for earthquake insurance in metropolitan Tehran, Iran. We investigate whether individuals’ expected utility when insured is more than their expected utility when not insured. We also investigate empirically, the effect of individuals’ risk aversion on demand for earthquake insurance. The main results of this study are summarized as follows: First, the expected utility in the state of insurance is more than the expected utility in the state of no insurance. Second, the results show that individuals’ risk aversion is significantly related to demand for residential earthquake insurance.