How Temperature Drives Health Insurance Demand?

Climate change, along with its associated extreme and abnormal temperature events, poses risks to human health. We examine the impact of temperatures on health insurance decisions using a proprietary dataset that links critical illness insurance records with long-term, daily meteorological data. We show that both heat and cold increase health insurance purchases. The effect of heat is driven by both heightened physical health risks and the salience of unexpected, abnormal heatwaves in health insurance decisions. However, the heat impact decays with prior experience to abnormal heat events. In contrast, we find no evidence that cold temperatures either increase physical health risks or trigger a salience effect. Risk preference changes and business cycles do not explain our findings. Air conditioning mitigates heat-induced insurance demand and centralized heating system mitigates cold-induced insurance demand. Males, the elderly, and outdoor workers are more sensitive to heat compared to females, the young, and indoor workers. This research uniquely quantifies the effects of abnormal temperatures on insurance purchases, highlighting the salience effect in insurance decision-making.