Voluntary purchases and adverse selection in the market for flood insurance

Jacob Bradt, Carolyn Kousky and Oliver E.J. Wing

Journal of Environmental Economics and Management, 2021, vol. 110, issue C

Abstract: Flood-related events are the most damaging natural hazard in the United States, yet many households at risk do not have flood insurance. Using detailed policy- and claims-level data from the National Flood Insurance Program (NFIP), we conduct a holistic analysis of the market for publicly provided flood insurance in the U.S., focusing on not only high-risk areas subject to an incomplete mandate requiring the purchase of insurance, but also lower risk areas where no such mandate exists. We are able to better understand determinants of demand for insurance in a setting with voluntary purchase and low take-up and therefore provide a more complete analysis of the market for flood insurance in the U.S. than previous work. In addition to exploring correlates of demand for flood insurance, this paper provides quasi-experimental estimates of households’ willingness-to-pay for flood insurance and finds strong evidence to suggest the NFIP failing to utilize full information on flood risk leads to adverse selection in the program.

Keywords: Natural disasters; Flood risk; Insurance; Adverse selection (search for similar items in EconPapers)
JEL-codes: G52 Q54 Q58 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:110:y:2021:i:c:s0095069621000826

DOI: 10.1016/j.jeem.2021.102515

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