Does the National Flood Insurance Program Have Redistributional Effects?

Bin Okmyung (), Bishop John and Kousky Carolyn
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Bin Okmyung: Department of Economics, East Carolina University, Brewster A-427, Greenville, NC 27858-4353, USA
Bishop John: Department of Economics, East Carolina University, Brewster A-427, Greenville, NC 27858-4353, USA
Kousky Carolyn: Risk Management and Decision Processes Center, Wharton School, University of Pennsylvania, Philadelphia, PA 19104, USA

The B.E. Journal of Economic Analysis & Policy, 2017, vol. 17, issue 4, 11

Abstract: This study examines possible redistributional effects of the National Flood Insurance Program (NFIP), using a nationwide database of flood insurance policies and claims between 2001 and 2013 from the Federal Emergency Management Agency. Applying methods from the tax and transfer progressivity literature, we use the departure from per capita income proportionality at the zip code level as our measure of progressivity. Our findings indicate that premiums as a percentage of coverage purchased are regressive: premium shares are larger than income shares for lower-income zip codes. Payouts, however, also as a percentage of coverage purchased, are progressive, meaning lower-income zip codes receive a larger portion of claims paid. Overall net premiums (premiums – payouts) divided by coverage are also regressive. Our findings are driven by certain aspects of the current rate structure of the NFIP, as well as how income is related to risk. We discuss potential policies to provide assistance to lower-income households in purchasing flood insurance.

Keywords: Gini index; NFIP; redistributive effect; departure from proportionality (search for similar items in EconPapers)
JEL-codes: D31 G22 Q54 R38 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (3)

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DOI: 10.1515/bejeap-2016-0321

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