Causes of Underinsurance against Natural Disasters

Why do relatively few individuals voluntarily purchase coverage against natural disasters? This question has important implications for public policy for two principal reasons: Uninsured victims of natural disasters may incur severe financial losses which will affect their future well-being. After a disaster the common lament is, "I wish that I had purchased insurance." General taxpayers may be forced to help share the costs of recovery in the form of government grants and low-interest loans to uninsured disaster victims. This raises the question as to whether disasters are primarily a public or private responsibility.