Unintended Consequences of "Mandatory" Flood Insurance

Kristian Blickle and Joao Santos

No 1012, Staff Reports from Federal Reserve Bank of New York

Abstract: We show that the National Flood Insurance Program inadvertently concentrated flood risk among households least able to bear it. Using nationwide flood map data, HMDA records, and credit panel data, we show: (i) insurance mandates reduce mortgage lending, particularly for low-income applicants, (ii) these households disproportionately sort into areas immediately adjacent to flood zones, where credit is still available to them but actual flood risk remains, (iii) following disasters, households in these areas experience sharp increases in debt and delinquency rates. Our results show that binary insurance mandates, which are not reflective of true underlying risk, have adverse unintended consequences.

Keywords: insurance; unintended consequences; regulation; FEMA maps; flooding; mortgage lending; access to credit (search for similar items in EconPapers)
JEL-codes: G21 G28 Q5 Q54 (search for similar items in EconPapers)
Pages: 84
Date: 2022-04-01
New Economics Papers: this item is included in nep-ban, nep-env, nep-ias and nep-ure
Note: Revised July 2026.
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Citations: View citations in EconPapers (7)

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