Insurance Market Response to Flood Hazards: Empirical Evidence from the Housing Market

Carolin Pommeranz and Bertram I. Steininger

ERES from European Real Estate Society (ERES)

Abstract: Higher property losses due to flooding events represent an increasingchallenge to the global insurance sector. This study aims at identifying theimpact of flood hazard location on property prices and evaluates the floodrisk perception of potential homeowners. We utilize insurance-basedgeographical information system (GIS) data for flood zone identification andresidential property offering records from Dresden, Germany to run aspatial Durbin model. Results indicate that homeowners are almostinformed about costs for sufficient flood insurance coverage and premiumsare capitalized into the residential property market since location within aflood risk area lowers offering prices for houses by 26%. However, forcondominiums within a flood-prone area the price discount is only 3%.Furthermore, price discounts exceed capitalized insurance premiums due tonon-monetary losses that cannot be covered by insurance.

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2016-01-01
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