The threshold effect of climate risk and the non-linear role of climate policy uncertainty on insurance demand: Evidence from OECD countries

This paper investigates whether climate risk and climate policy uncertainty (CPU) have traditional linear or complicated non-linear impacts on insurance demand. We find evidence that both phenomena exist. Linear model shows positive effect of climate risk and negative effect of CPU on insurance demand. However, climate risk and CPU are interdependent, non-linear analysis demonstrates that CPU acts as a threshold. In particular, climate risk has a U-shaped relationship with life insurance demand and an inverse S-shaped relationship with non-life insurance demand, which provides insurance companies with a better understanding of how insurance demand fluctuates under climate risk.